No personal income tax, a filing process most people finish in an afternoon, and a franchise tax that the overwhelming majority of small operators never actually owe. That combination is a big part of why Texas draws so many new business filings every year. This is what forming and running one there actually involves in 2026.
1. Which business structure fits you?
The options break down like this:
- Sole proprietorship. You and the business are the same legal entity, so there's nothing to file just to begin. The tradeoff is personal liability for whatever the business owes.
- Partnership. Two or more owners running things jointly, carrying the same exposure to liability as a sole proprietorship, just spread across the group.
- LLC. What most small Texas businesses end up choosing, largely because it keeps your personal assets separate from the company's debts and legal troubles.
- Corporation, S-corp or C-corp. Comes with more filings and more formal structure, which tends to pay off once investors or multiple shareholders enter the picture.
See our guide on choosing a business structure if you want the fuller comparison.
Only LLCs and corporations file with the Texas Secretary of State, the agency responsible for business filings statewide. Sole proprietorships and general partnerships have no formation document, so there's nothing for them to file there.
2. Register your business
Forming an LLC
Texas LLCs come into existence when you file a Certificate of Formation (Form 205) with the Secretary of State. The fee runs $300, and standard online processing through SOSDirect takes roughly 5 to 7 business days; pay an extra $25 and you can get same-day or next-day expedited turnaround.
You'll also need a registered agent with a physical Texas address who can accept legal documents during business hours. If you live in the state, you're free to be your own agent, or you can hire a commercial service instead.
State law doesn't require an operating agreement, but drafting one is still smart, especially with more than one member on the LLC, since it's the document that governs how decisions and profits actually get split.
Sole proprietorships and DBAs
Sole proprietorships have no filing to make with the state. Operating under an assumed name means filing an Assumed Name Certificate, commonly called a DBA, with the county clerk where your business operates, not with the Secretary of State.
3. Get an EIN
An Employer Identification Number costs nothing through the IRS and takes about 15 minutes to get online. Even a single-member LLC with zero employees needs one to open a business bank account, hire anyone down the road, or file most business tax forms.
4. Check licenses and permits
Texas has no catch-all business license either. Requirements shift based on industry and city: certain professions need their own licensing, your city or county may require a local permit or certificate, and selling taxable goods or services means registering for a sales tax permit through the Comptroller. Our guides on professional licensing by industry and zoning laws for home businesses cover both in more detail.
5. Understand Texas taxes
The absence of a personal state income tax is the single biggest draw for people forming businesses in Texas. In its place, the state runs a franchise tax, technically assessed on a business's taxable margin, but most small operators never see a bill for it. For 2026 and 2027 reports, any business with annualized total revenue at or below $2.65 million owes nothing. Cross that threshold and the rate becomes 0.375% for qualifying retail and wholesale businesses, or 0.75% for most everyone else.
Owing zero doesn't mean skipping the paperwork, though: every LLC still has to file a Public Information Report each year by May 15, regardless of revenue.
Sales tax runs 6.25% at the state level, and local jurisdictions can layer on up to 2% more, bringing the combined ceiling to 8.25%, which is what most major Texas cities land on.
6. Stay compliant
Texas skips the traditional annual report altogether. Instead, your ongoing obligation is the Franchise Tax Report and Public Information Report, both filed with the Comptroller's office rather than the Secretary of State, and both due May 15 each year regardless of what you owe. Fall behind long enough and the state can forfeit your LLC's right to operate.
Texas business costs at a glance
| Item | Cost |
|---|---|
| Certificate of Formation (LLC) | $300 |
| Franchise tax (revenue at or below $2.65M) | $0 |
| Franchise tax (above threshold) | 0.375% to 0.75% of margin |
| Public Information Report (every year) | Free |
| Registered agent service (optional) | $100 to $250/year |
| EIN | Free (IRS) |
| State income tax | None |
| State sales tax | 6.25% + up to 2% local (8.25% max) |
Frequently asked questions
Does Texas have personal income tax?
No. That absence is arguably the single biggest reason so many people choose to form businesses there.
Do most small businesses pay the Texas franchise tax?
No. For 2026 and 2027 reports, businesses with annualized total revenue at or below $2.65 million owe nothing at all.
How much does it cost to form an LLC in Texas?
$300 for a Certificate of Formation, with same or next-day expedited service available for an extra $25.
Do I still need to file anything in Texas if I owe zero franchise tax?
Yes. Every LLC still has to file a Public Information Report each year by May 15, even when the amount owed is $0.
How high is sales tax in Texas?
6.25% at the state level, with local jurisdictions able to add up to 2% more, for a combined maximum of 8.25%.
Figures above are drawn from the Texas Secretary of State and Texas Comptroller as of 2026; rates and fees shift over time, so verify before filing anything. Nothing here is legal or tax advice. A Texas-licensed attorney or CPA can speak to your specific situation.