Incorporating in Texas (2025): Steps, Fees, & Benefits

Considering launching your next big idea in Texas? You’re not alone. From Austin’s tech buzz to Houston’s energy empire, the Lone Star State has become the go-to playground for entrepreneurs who want scale, simplicity, and a tax bill that won’t make them cry.

Texas represents economic freedom, endless opportunity, and a “let’s-get-it-done” spirit that founders love. But before you order your boots and business cards, let’s walk through the real story, what it actually costs to incorporate in Texas, how to register your business, and whether you’re better off running as a Texas LLC or a corporation.

Why Incorporate in Texas

Texas is famous for three things: barbecue, big ideas, and business freedom. It’s consistently ranked as one of the best states for startups thanks to its low-tax structure, booming population, and can-do business climate.

A. The Tax Advantage: Zero State Income Tax

The most famous benefit of Texas business registration is its tax structure for individuals and businesses.

• No Personal Income Tax: Texas is one of the few states that imposes no personal income tax on residents. This is a massive win for business owners utilizing pass-through entities (like an LLC or S-Corp), as profits flow through to them without being hit by a state-level income tax.
• No Corporate Income Tax: Unlike states such as California, Texas does not levy a state corporate income tax. Corporations pay the Texas Franchise Tax instead (discussed in detail below), which is generally revenue-based, making the tax burden more predictable than profit-based corporate taxes for most startups.

B. Access to Capital and Market Depth

The Texas economy is the second largest in the United States, offering enormous operational advantages:

• Diverse Industry Hubs: Texas is no longer just energy. It boasts powerful tech centers (Austin, Dallas), global finance and manufacturing (Houston, Dallas), and a major logistics infrastructure (spanning the state).
• Growing Talent Pool: Migration from other high-cost states has rapidly expanded Texas's talent pool, especially in tech and finance, providing access to a skilled workforce without the steep living expenses found on the coasts.
• Limited Liability Protection: Both the LLC and Corporation structures offer strong asset protection, shielding the owner's personal assets (home, savings) from the The foundational reason founders start a business in Texas is to manage the business's debts and liabilities.

Cost to Incorporate in Texas 

Texas likes to keep things simple,mostly. The fees are straightforward, but the Texas Franchise Tax catches many founders off guard. Here’s what you actually pay to get started and stay compliant.

State Filing Fees

• Certificate of Formation (LLC or Corporation)
  
  • Cost: $300 (one-time)
  • Where: Texas Secretary of State
  • Where: Texas Secretary of State
• Registered Agent Fee:
  
  • Cost: $0 to $150 annually
  • Why: Every Texas business needs a registered agent with a physical address in the state to handle legal mail. You can be your own agent if you’re local, or hire a professional for privacy and peace of mind.
• Biennial Report (LLC) / Annual Report (Corp):
  
  • Cost: $0 (No Fee)
  • Frequency: Annually (Corporations) or Biennially (LLCs)
  • Note: Corporations file a simple public information report each year, while LLCs do it every two years. There’s no filing fee required, which is a refreshing change compared to other states that charge just to stay alive.

Understanding the Texas Franchise Tax

This is the one piece of Texas law you can’t ignore. The Texas Franchise Tax is basically the state’s way of saying, “Thanks for doing business here. Now file your report.”

Who Pays It:

• Entities with annual Texas-sourced revenue above about $1.23 million (the “No Tax Due” threshold for 2025).
  
  
• If you earn less than that, you still have to file the No Tax Due Report by May 15 each year, even if you owe nothing.
  
  

Rates:

• General businesses: 0.75% of taxable margin (gross revenue minus certain deductions).
  
  
• Retail or wholesale: 0.375%.
  
  

Because it’s calculated on revenue, not profit, you could technically owe franchise tax even if you had a slow year. Think of it as a predictable cover charge for doing business in Texas.

Texas LLC vs Corporation for Startups

Choosing the right structure is crucial for managing compliance, liability, and investment potential when you start a business in Texas.

Limited Liability Company (LLC)

1. Taxation

• Details: Pass-Through Taxation (default). Income flows directly to the owners' personal tax returns, avoiding federal double taxation.
• Implications: Excellent for small, profitable businesses and sole proprietors due to simplicity.

2. Management

• Details: Flexible. It can be managed by the members (owners) or by appointed managers.
• Implications: Low compliance requirements; minimal formal meetings or resolutions are needed.

3. Funding Potential

• Details: Limited. VCs and institutional investors generally do not invest in an LLC due to complex equity and tax issues.
• Implications: Best for self-funded ventures, small shops, or lifestyle businesses.

4. Ongoing Cost

• Details: Low. No annual report fee and no tax due if revenue is under the threshold.
• Implications: Ideal for startups that anticipate moderate revenue or initial losses.

Corporation (C-Corp or S-Corp)

1. Taxation

• Details:
  
  • C-Corp: Double Taxation (taxed at the corporate level, then again on shareholder dividends).
  • S-Corp: Elects pass-through status (like an LLC).
• Implications: A C-corp is less tax-efficient but necessary for specific growth goals. An S-Corp avoids double taxation but has shareholder limits.

2. Management

• Details: Formal structure of shareholders, board of directors, and officers.
• Implications: A higher compliance burden (bylaws, annual meetings, and minutes) is required to maintain liability protection.

3. Funding Potential

• Details: The funding potential is high because C-Corps are the universal standard for venture capital funding, private equity, and issuing public stock.
• Implications: Mandatory choice for businesses seeking rapid, outside capital investment.

4. Ongoing Cost

• Details: Low. No annual report fee and no tax due if revenue is under the threshold.
• Implications: The standard legal vehicle for businesses aiming for rapid, scalable growth.

The Startup Recommendation: For any business planning to seek venture capital or large-scale equity investment, a C-Corporation is the required entity. For all other small businesses, consultants, or real estate holding companies, the Texas LLC offers superior flexibility, simplicity, and tax efficiency.

4. Step-by-Step Texas Business Registration

The Secretary of State's SOS Direct system streamlines and expedites the online business registration process in Texas.

Step 1: Choose and Check Your Business Name

• Your business name must be distinguishable from all other registered names in Texas.
• Action: Use the Texas SOS search tool to confirm name availability before filing.
• Tip: You can optionally reserve a name for 120 days by paying a $40 fee.

Step 2: Appoint Your Texas Registered Agent

• The registered agent must be an individual or a business entity authorized to transact business in Texas and have a physical street address in the state.
• Best Practice: Hire a professional service to ensure reliable legal mail delivery and keep your home address off the public record.

Step 3: File the Certificate of Formation

This is a core legal step to incorporate in Texas.

• Filing Details: File the Certificate of Formation (Form 205 for LLCs, Form 202 for C-Corps) with the Texas Secretary of State.
• Filing Fee: $300.
• Speed: Online filing via SOSDirect is the fastest option, often providing approval within 3-5 business days.

Step 4: Create the Governing Document

• For LLCs: Draft and sign an operating agreement. Although this document is not filed with the state, it is mandatory for internal governance and for proving in court that the business is separate from its owner.
• For Corporations: Draft and adopt bylaws. These govern the internal management, election of directors, and officer duties.

Step 5: Secure the EIN and Financial Identity

• EIN: Obtain the Employer Identification Number (EIN) for free from the IRS website. This is required to open a bank account and file taxes.
• Banking: Open a separate business bank account to maintain your liability protection.
• Digital Authority: Reinforce your corporate identity by registering your domain through a trusted service like my.inc. A professional .inc domain provides instant credibility that aligns with your newly established Texas entity.

Step 6: Address Local Licenses and the Franchise Tax Report

• Local Licenses: Texas does not have a general statewide business license. You must inquire with your specific city and county clerk for local licensing, zoning permits, and specific industry requirements.
• Franchise Tax Compliance: Register with the Texas Comptroller of Public Accounts. Even with $0 tax due, you must file the annual Franchise Tax Report (or No Tax Due Report) every year by May 15th to maintain excellent standing.

The Smart Choice for Scale

Deciding to incorporate in Texas is a bet on simplicity, opportunity, and long-term scalability. Sure, there's a $300 filing fee and an annual franchise tax reminder, but when weighed against the substantial benefits, it's a minor cost for significant freedom.

Zero state income tax, no annual filing fees, and access to one of the fastest-growing economies in the country make Texas a launchpad for ambitious founders.

Whether you’re running a one-person consultancy or building the next Austin unicorn, Texas provides you room to grow without weighing you down.

Frequently Asked Questions (FAQ)

• Q1: What is the greatest mandatory ongoing cost to incorporate in Texas?
  
  • A: The most significant potential ongoing cost is the Texas Franchise Tax, which must be paid annually if your Texas-sourced revenue exceeds the No Tax Due threshold (approx. $1.23 million in 2025). The most significant mandatory ongoing compliance is filing the Franchise Tax Report (or No Tax Due Report) every year by May 15th, even if you owe $0 tax.
• Q2: Does Texas require an operating agreement to be filed?
  
  • A: No. Texas doesn't require LLC operating agreements or corporate bylaws to be filed with the Secretary of State. However, both documents are legally crucial for governing your business, defining ownership, and ensuring the entity structure holds up against legal challenges.
• Q3: Is the $300 filing fee the only fee for Texas LLC formation?
  
  • A: The only one-time fee paid directly to the Texas Secretary of State to set up the LLC is the $300 filing fee. Additional mandatory costs include securing a registered agent (up to $150 annually if you hire one) and local city/county licenses, which vary by location.
• Q4: If my business is a remote tech company, do I still need a Texas Registered Agent?
  
  • A: Yes. Any entity that is formed through Texas business registration (a domestic Texas LLC or corporation) must maintain a registered agent with a physical street address in the state. This is required by state law, regardless of where the owners or employees reside or where the business primarily operates.