- Step 1: Business Structure
- Step 2: Pick a Name
- Step 3: Register
- Step 4: Federal Employer Identification Number
- Step 5: Open Company Accounts
- Step 6: Business Licenses and Permits
- Step 7: Ongoing Requirements
Step 1 : Business Structure
There are 3 basic options: a DBA, a Corporation or an LLC.
- A DBA or “Doing Business As” is not really a separate structure, but just a different name that an individual or partners use as their business name.
- A Corporation is a separate entity (provides liability protection to the owners) that has a structure that includes shareholders, directors and officers. More complex than a DBA but the entity of choice for large companies and startups that intend to raise funding. Some professions are required to choose what is known as a “Professional Corporation” or PC (doctors, lawyers, architects, etc.).
- An LLC or “Limited Liability Company” is a newer type of business that is both a separate entity but provides very easy management (doesn’t require directors or officers) and taxation. Has largely replaced the DBA and Corporation in popularity recently as it provides liability protection but with much less complexity (and taxation) than a Corporation.
Step 2: Business Name
Picking a business name is easier said than done – many legal and business problems can arise from picking the wrong name (you can always change it later but the less times you have to do that, the better).
- Make sure you’ve covered the basics: unique, easy to understand/pronounce (practice saying it out loud: “Thanks for calling XYZ”) and can survive over time (“DVD World” is not timely).
- Search the web for your proposed name. Search Google, Bing and the like as a “first sweep” for any potential conflicts, especially in your state or local jurisdiction. NOTE: If you intend to operate nationally or even internationally it will be even more important that your name be unique. This should cover many cases where a company name is being used but not officially trademarked (see next tip).
- Do a trademark search with the US Patent and Trademark Office (USPTO). This will be a very good indicator if your name will have any conflicts. There’s an art to trademark searches but in our experience if you can use google at a fairly advanced level you can reasonably clear a name yourself. Tip: search misspellings, plurals, variations of spelling, sound-alikes and other versions of your chosen name to be sure it’s not already registered.
- Make sure your company name choice is available by searching Texas’s Department of State: Division of Corporations business name database. Note: Make sure to search variations of spelling, plurals and misspellings as the state may reject a name that is too similar (then you have to start all over again, wasting valuable time).
Step 3: Register
Each state has its own requirements for registering a business. Now that you’ve chosen a business structure and picked your business name, here are the requirements to register your business in Texas.
How to form an LLC in Texas
- Hire a Business Attorney
- File the “Articles of Organization” with the Texas Division of Corporations.
- Optional: Elect S-Corporation status with the IRS by filing IRS Form 2553. Yes, even an LLC can choose to be taxed as an S-Corporation (or even a C-Corporation). TIP: Speak to your tax advisor about this important issue because it adds complexity to your LLC most people would rather avoid. Here at the firm we have specific people that we know and trust that we recommend to all of our clients.
- Hold an Organizational Meeting to take contributions from the members, issues Member Certificates adopts the company Operating Agreement and more (yes, even for 1 person LLCs).
How to Incorporate in Texas
- File the “Articles of Incorporation” with the Texas Division of Corporations.
- Hire a Business attorney.
- Optional: Corporations can elect S-Corporation status with the IRS by filing IRS Form 2553.
- Hold an Organizational Meeting to properly organize the corporation, take contributions from the shareholders, elect directors and officers, issues stock, adopts the Corporate Bylaws and more.
Considerations when Incorporating or forming an LLC in Texas
The Texas Division of Corporations could take anywhere from 2-3 business days for e-filing to 3 to 5 days for mail filings to process the paperwork. This may increase during peak periods.
A registered agent (or Business Planning Attorney) is required for every Texas Corporation and LLC. The chosen registered agent must have a physical street address in Texas. A Business Planning Lawyer who will provide their address and forward any important documents to you. This is convenient if you have to move, since you won’t have to file forms or pay fees, (just update your address with your agent).
How to File a DBA in Texas
DBA’s in Texas are filed with the County in which the business is located.
- Check your business name by calling the County Recorder or visiting their website (search for “YOURCOUNTY county recorder” should find it).
- Obtain the forms from the county to register your DBA; some counties let you search the name and register online. Here is where you search in Texas.
- File the forms with the County. Some counties require the form to be notarized.
Step 4: Federal Employer Identification Number (FEIN or “EIN”)
Your EIN is like your Social Security Number for your company. It’s required for Corporations and LLC’s and optional for DBA’s (if you don’t have any employees, then it’s required). However, if you are a DBA and don’t obtain an EIN you will be forced to use your Social Security Number on many documents so it’s typically recommended you obtain the EIN to prevent identity theft.
To obtain an EIN you can apply online with the IRS or via IRS Form SS-4.
You can read more about corporate tax laws in Texas on the Texas Department of Taxation and Finance website.
Step 5: Open Company Accounts
To keep business and personal expenses separate, you should open a separate account for your business. In addition, getting business credit cards is how you begin to build a company credit profile (corporation or LLC required) and can later qualify for larger loans and lines of credit. To open the account simply call your chosen bank and inquire on the steps to open a business bank account. Typically you’ll need a) your filed paperwork b) your EIN c) a company resolution authorizing your company to open the account (signed by the owners, members, officers or directors, etc.).
Step 6: Business Licenses and Permits
Now that you’ve registered your business name you need to obtain a business license for your company – this authorizes your company to do business in your city or county. Typically this also involves registering for state taxes and permits (the city may require them as part of the business licensing process).
The Go Big in Texas website is a great business portal with information covering revenues, services, and business licensing in Texas.
Step 7: Ongoing Requirements
DBA: Your Fictitious Business Name should be valid for 5 years (unless you change the company name or other information listed on the FBN) at which point you’ll need to renew it with the county.
LLC: Unlike most states, Texas does not require LLCs to file annual reports. They must file annual tax franchise reports with the CPA instead
Corporation: Every year you’ll need to file the “Statement of Information” or Annual report which updates the state on your business address and other things. There is a $400 late fee for all for-profit corporations who do not make the May 1 deadline.
Franchise Taxes: Texas corporations are required to file an annual report with the Texas Comptroller of Public Accounts, due May 15 every year (or the next business day, if May 15 falls on a holiday). There is a $50 penalty for a late filing of a franchise tax, which is calculated as a percentage of the company’s net income for that year.’
At Shann M Chaudhry Esq, Attorney at Law PLLC we have more than 11 years of Business Planning experience and would be happy to help you through this process. You can call the firm at (210)646-9400 or email us at email@example.com to book a free pre-consultation with one of our attorneys to discuss your needs.