Texas has been hailed as one of the best states for small businesses and startups for its low business taxes, nonexistent income taxes and a generally friendlier state economy. That said, you shouldn't be too hasty to move to Texas and set up shop. There are plenty of legal considerations to account for, such as the type of business you should create and Texas's employment laws.
Texas Business Structures
There are several types of legal business structures you can use in Texas, each of which has its benefits and drawbacks. The business structure you choose impacts your tax obligations and personal liability as a business owner. There are four major types of business structures:
Sole Proprietorship—The most basic business structure owned and operated by a single person (who, in many instances, is an independent contractor). A sole proprietorship doesn't require a formal organization but you'll still need to apply for the necessary business permits and licenses.
Partnership—A business owned by two or more people, each of whom shares either equal or proportionate ownership of the company. There are three sub-types of partnerships that divide ownership differently:
General Partnership—Equal ownership is shared among business owners.
Limited Partnership—The degree of ownership is relative to each owner's personal investment into the business.
Limited Liability Partnership (LLP)—Similar to a limited partnership but with some tax benefits and liability and debt shielding for limited partners.
Corporation—A business that's treated as a legal person that possesses limited liability and shields its owners (called “shareholders”) from liability (often called the “corporate veil”). Separate employees called “directors” operate the corporation to the shareholders' interests.
Limited Liability Company (LLC)—A business structure that's a hybrid of a partnership and a corporation. All business owners (called “members”) pay the LLC's taxes as a part of their personal tax returns and possess limited liability relative to their investment.
Texas Business Taxes
Most Texas businesses will be subject to state business taxes, some of which are specific to the types of goods or services your business offers. An owner's business tax liability is contingent upon their business's structure. For instance, a shareholder of a corporation doesn't possess as much business tax liability as a general partner.
The franchise tax is Texas's main business tax. Most businesses except for sole proprietorships and specific partnerships are liable for the franchise tax. It is taxed for the privilege of doing business in Texas. The tax rate is less than one percent in Texas but varies per the type of business. Other business taxes include sales, property and insurance taxes.
Can an Attorney Help My Small Business?
A small business owner should get assistance with legal matters as they can ruin a business if mishandled or ignored. Issues like defending against wrongful termination claims or negotiating the acquisition of another company's assets are complex and time-consuming. Retaining an attorney to help prevent legal problems is a wise move.