The first step in starting a business is to determine the basic legal structure of the business and to properly record the business name. This step is important when starting a business since financial and legal implications vary depending on which legal structure is selected. These range from responsibilities for annual franchise tax fees to the extent of personal liability for business dealings. The business name selected is the identifying and marketing component of the business. It should be given much thought and consideration. A professional tax consultant, accountant, and/or attorney should always be consulted before selecting a legal structure and business name.
The State of Texas does not require a general "business" license. However, there are a number of regulatory agencies that have licensing and permitting requirements based on the type of service, or products associated with your business.
To ensure that all permitting requirements are met, you should contact the local county and/or city government in which you plan to conduct business to determine if there are any additional requirements.
Please visit the Texas.gov's Occupational Licenses and Permits and select the applicable occupation from the menu on the left.
Should the business discharge pollutants, the Texas Commission on Environmental Quality requires various air, water and waste permit authorizations.
The Texas Commission on Environmental Quality (TCEQ), Small Business and Local Government Assistance Office, and the Office of the Governor Economic Development & Tourism division have established a relationship to assist companies, which may experience unwarranted delays in their environmental permitting process for projects that could affect job creation or have a high economic impact.
Once the legal structure of the business has been determined, and if a separate business name will be used, the business name must be registered with the county clerk's office and/or the Secretary of State.
It is very important to do a thorough search when considering a business name. A name may not be used by more than one corporation in the state. The Secretary of State will perform a name search to verify that no other corporation, limited partnership, or limited liability company in Texas is using the exact name selected. To find out if a business name is available, call the Secretary of State and they will do an immediate computer search. The search is only for business names registered with the Secretary of State, and does not include business names registered only with a county clerk.
If a corporation and an unincorporated company have very similar names, neither automatically has the right to the name. If both parties have properly filed the Assumed Name Certificate, the courts will most likely have to decide this matter. Taking the time necessary to conduct the name research up front will help avoid legal costs after the business is opened and operating.
If a corporation will transact business under names other than that stated in its articles of incorporation, the corporation must file an Assumed Name Certificate with the Secretary of State, and with the county clerk(s) of the county or counties in which the principal office and registered office of the corporation are located. (See next section for details on Assumed Name Certificates.)
Local Registration (Assumed Name Certificate)
If the business will operate as a sole proprietorship or a general partnership, an Assumed Name Certificate or d.b.a. (doing business as) for each name (or deviation of that name) the business will use must be on file with the county clerk in each county where a business premise will be maintained. If no business premise will be maintained, it should be filed in each county where business will be conducted.
If the business will operate as a corporation, limited partnership, or a limited liability company, and the business will be identified by a name other than the name on file with the Secretary of State, an Assumed Name Certificate must be filed with the Secretary of State and each county in which the business will have a registered or principal office.
Neither the filing of an Assumed Name Certificate nor the reservation or registration of a company name imparts to the party filing the certificate any intellectual property right in the business name. It is merely a formal process that informs the general public of the registered agent for a business and where official contact with the business can be made.
Filing the Assumed Name Certificate
Each county clerk office may use a different form; however, the information requested should be the same. Be prepared to provide the business name, mailing address, city, state, zip code, expected period of operation, business type, and/or owner information.
The period of operation is the period of time during which the business will use the name. Ten years is the maximum length of time an assumed name filing is valid. However, if the name will be used for a period of less than ten years, this should be indicated on the form. Names may also be renewed every ten years.
Business type refers to the legal structure of the business. Indicate whether the business will operate as a corporation, partnership, sole proprietorship, etc.
Owner information is the name(s) of the owner(s), personal address(es), and signature(s). All owners' signatures must be notarized. This service is sometimes offered at the county clerk's office. The form cannot be filed until all owners have signed it and all signatures have been notarized.
The following information will be helpful in filing the Assumed Name Certificate in the county the business will operate:
- First, write down the name of the business you will be considering. Pay close attention to capitalization, spacing, punctuation, etc. Consider this carefully as this name will identify the business to the public.
- Next, search the county records for that exact business name in the assumed name books or computer. An assumed name filing is valid for ten years, so search records for the last ten years to verify that the name is available. One book will not necessarily encompass one year of filings, so check the front of the book for dates. Some records are computerized; however, a computerized index may not contain ten years of filing history. Use the computer for the period it covers, and then use the books for any of the remaining ten years. If the business name has been used, look in the margin to see if it has been abandoned. If the name has been abandoned, it can legally be used again. Many county clerk offices will provide a name search service for a nominal fee. The whole search process will often be taken care of through the mail. Please contact the local county clerk for verification of their process.
- Finally, if the company name is available, fill out the assumed name form and have it notarized. Then file it with the county clerk's office. The county clerk will keep the original Assumed Name Certificate, so be sure to request several certified copies (at least one for the bank and one for your business records). For filing fee information and accepted form of payment, contact the local county clerk's office. Most county clerk offices accept cash, certified checks, or money orders. If processing via mail, send the forms by certified mail with a return receipt requested to verify receipt by the county clerk.
A sole proprietorship exists when a single individual operates a business and owns all assets. A sole proprietor is personally liable for all debts, and business ownership is nontransferable. Under a sole proprietorship, the life of the business is limited to the life of the individual proprietor. The sole proprietorship makes no legal distinction between personal and business debts, and it does not require a separate income tax return. A sole proprietorship is often operated under the name of the owner. Whenever operating a business under a name other than the sole proprietor, an Assumed Name Certificate must be filed with the county clerk of each county in which the sole proprietorship maintains business premises or conducts business. Assumed Name Certificates are discussed later in this section.
A general partnership exists when two or more individuals or businesses join to operate a business. Under a general partnership, a separate business entity exists, but creditors can still look to the partners' personal assets for satisfaction of debts. Unless otherwise provided in a valid partnership agreement, general partners have equal management rights and share equally in profits and losses. A general partnership requires an annual partnership income tax return (separate from the partners' personal returns). A general partnership may be operated under the names of the owners, or a different name. In either case, an Assumed Name Certificate must be filed with the county clerk of each county in which the general partnership maintains business premises or conducts business.
A limited partnership is a partnership formed by two or more persons or entities, under the laws of Texas, and having one or more general partners and one or more limited partners. General partners are individually responsible to third parties for debts and liabilities of the limited partnership, while limited partners have limited liability exposure in most cases. A limited partnership must be registered with the Secretary of State. (See next section for details on the business name.)
Registered Limited Liability Partnership
A registered limited liability partnership is a general partnership that has been registered with the Secretary of State. A partner's liability in a registered limited liability partnership differs from that of an ordinary partnership. In a registered limited liability partnership, a partner is not individually liable, under certain circumstances, for debts and obligations of the partnership arising from errors, omissions, negligence, incompetence, or malfeasance committed in the course of business by others in the partnership.
A corporation (Subchapter C or S) is created when one or more individuals, partnerships, or other entities join together to form a separate entity for the purpose of operating a business in the state. A corporation has its own legal identity, separate from its owners. The corporation offers protection to the business owners' personal assets from debts and liabilities relating to the operation of the corporation. Taxation of the corporation varies depending on the type of corporation formed and elections made by the corporation under the United States Internal Revenue Code. A corporation must be registered with the Secretary of State.
A Subchapter C Corporation is taxed as a separate entity at a rate determined by the corporation's taxable income. The owners are not taxed personally for profits; however, the owners do pay additional personal taxes on any salaries and/or dividends.
Owners of Subchapter S Corporations are taxed directly on their proportional shares of the corporation's profits and may deduct business losses on personal income tax returns, similar to a partnership.
Limited Liability Company
A limited liability company is an unincorporated business entity which shares some of the aspects of Subchapter S Corporations and limited partnerships, and yet has more flexibility than more traditional business entities. The limited liability company is designed to provide its owners with limited liability and pass-through tax advantages without the restrictions imposed on Subchapter S Corporations and limited partnerships. A limited liability company must be registered with the Secretary of State.
All businesses operating in Texas as limited partnerships, registered limited liability partnerships, limited liability companies, corporations, professional corporations, nonprofit corporations, and professional associations must register with the Secretary of State. The Secretary of State provides a summary of requirements for the creation of these entities. The Secretary of State publishes several guides which offer guidelines for selecting and registering business entities. The guides also include administrative rules and sample forms promulgated by the Secretary of State.
Legal entities organized in other states or countries may transact business in Texas by registering with the Secretary of State. The Secretary of State can provide forms for the application for registration. An out-of-state business may also consider the option of creating a Texas corporation, limited partnership, or limited liability company for transaction of business in Texas.