How to start a sole proprietorship in Texas in 2025

Texas, known for its business-friendly climate and lack of state income tax, is an ideal place to start and grow your sole proprietorship. Whether you dream of opening a food truck in Austin, starting a freelance graphic design business in Houston, or launching a tech startup from your home in Dallas, the Lone Star State can be a great launching pad for your entrepreneurial journey. For a complete overview of starting any type of business, see our guide to starting a business in Texas.

While sole proprietorships are one of the most straightforward types of businesses to start, there are still some key checkpoints that every Texas sole proprietor will need to hit. Let's explore the steps to get your Texas sole proprietorship off the ground.

Jump to:

• What is a sole proprietorship?
• Why consider a sole proprietorship in Texas?
• Texas SMB data in 2025
• Steps for how to start a sole proprietorship in Texas
• Step 1: Choose a name for your Texas sole proprietorship
• Step 2: File a trade name and obtain an Assumed Name Certificate
• Step 3: Obtain licenses and permits for your sole proprietorship
• Step 4: Get an EIN
• Step 5: Open a bank account for your sole proprietorship
• Step 6: Get insurance for your sole proprietorship
• Step 7: Maintain compliance: Report and pay your taxes
• Benefits of operating a sole proprietorship in Texas
• Disadvantages of operating a sole proprietorship in Texas
• How are sole proprietorships taxed in Texas?
• Texas resources for small businesses
• Federal resources for small businesses

What is a sole proprietorship?

A sole proprietorship is the simplest, most common type of business structure. In this setup, one person owns and operates the business. It’s easy to form because there are minimal regulatory requirements and formalities, often requiring just a local business license to start. 

As a sole proprietor, you enjoy complete control over all business decisions and directly receive all profits. However, this also means you’re personally liable for all business debts and obligations because there’s no legal separation between personal and business assets. At the end of the year, you report your business income and expenses on your individual tax return, meaning you’ll pay profits at your individual tax rate and be responsible for self-employment taxes.

Why consider a sole proprietorship in Texas?

Independence is a proud tradition in the Lone Star State, and for many Texas small business owners, operating a business as a sole proprietorship is an efficient and cost-effective option. Some of the major reasons why are:

• Sole proprietorships are simple, flexible business structures that require less paperwork than most other business types.
• With no franchise tax on sole proprietorships and no income taxes at all, Texas provides an extremely low-tax environment for sole proprietors.
• A diverse, well-educated workforce and multiple large markets offer plenty of opportunities for expansion in Texas.

Texas SMB data in 2025

Texas was recently ranked the best state for business in the U.S. for the 20th consecutive year, thanks to its competitive tax incentives, robust infrastructure, and a skilled, diverse workforce that’s growing faster than the national average. These numbers help tell the story in more detail:

• Texas has the world’s 8th largest economy—bigger than that of Australia, Mexico, or Italy.
• Texas is home to more than 3.3 million small businesses, which make up 99.8% of businesses in the state. 
• In 2022, 43.9% of Texas’s exports came from small businesses, with an economic contribution of $194.4 billion.
• Texas is the #1 state for jobs created by Black business owners, Black and Hispanic women business owners, and veteran business owners.

The end result is a state that’s bursting with opportunities for small entrepreneurs. Next, let’s look at how you can get your sole proprietorship up and running in Texas.

Steps for how to start a sole proprietorship in Texas

While forming a sole proprietorship is quick and cost-effective, it doesn’t mean there isn’t any work that needs to be done, especially if you want to operate under a different name or if your industry requires certain licenses or permits. Here are the key steps for starting a sole proprietorship in Texas.

Step 1: Choose a name for your Texas sole proprietorship

First things first, settle on a name for your business. If you decide to use your legal name, you're all set. Your business will automatically operate under your name, and you can start running it immediately. This is the simplest option and requires no extra paperwork or costs.

However, if you want to operate your business under a name other than your own, you'll need to file an Assumed Name Certificate, also known as a DBA (Doing Business As). Before you file, make sure another business in Texas doesn't already have your desired business name. You can do this by checking the Texas Comptroller of Public Accounts. Additionally, your business name should not be misleading or use certain government agency terms or abbreviations — e.g., EPA or CIA.

Step 2: File a trade name & obtain an Assumed Name Certificate

Once you’ve confirmed that your chosen name is available, you’ll need to file an Assumed Name Certificate with the county clerk's office in each county where you plan to operate your business. The filing process and fees vary by county, but it typically costs between $15 and $24.

Some counties require you to renew your Assumed Name Certificate periodically, so be sure to check the specific requirements for your county and keep your registration up to date. In Texas, the duration for the certificate cannot exceed 10 years. After filing, you can legally use your DBA for all business activities, including marketing, signage, and bank accounts.

For more information on Assumed Name Certificates, visit the Texas Secretary of State site.

Step 3: Obtain licenses and permits for your sole proprietorship

Assembling the different licenses and permits required to start a business can seem like a daunting task. Fortunately, Texas has relatively few registration requirements for sole proprietorships, though it’s still critical to secure any required credentials. 

Do I need to register a sole proprietorship in Texas?

No, you don’t need to register your sole proprietorship unless you want to use a business name other than your legal name. If that’s the case, you need to file an Assumed Name Certificate with your local county clerk.

Do I need a business license in Texas as a sole proprietor?

Texas doesn’t require a general state business license for sole proprietors. However, depending on your industry and location, certain types of businesses may need specific licenses or permits to operate legally. For example:

Sales and use tax permit

If you sell goods or services subject to sales tax, you’ll need to get a sales and use tax permit from the Texas Comptroller of Public Accounts. This permit allows you to collect sales tax from customers and remit it to the state.

Professional and occupational licenses

Certain professions, such as barbers, electricians, and real estate agents, require specific state licenses. Use resources like the Texas Licenses and Permits Guide and the Texas Business Permits Office to determine which licenses and permits apply to your business.

Local permits

Depending on your location and business type, you might need local permits from your city or county. This can include health permits, building permits, and zoning clearances. Check with your local city hall or county clerk’s office to see what’s required.

To find out what you need, look to resources such as the Texas Business Licenses and Permits Guide, the Texas Business Permits Office (BPO), and your local county clerk or city government office. Once you know which licenses you need, follow the application instructions provided by the relevant state or local agencies. This may involve filling out forms, paying fees, and providing additional documentation, such as proof of insurance or a business plan. 

After obtaining your licenses and permits, comply with any ongoing requirements, such as renewals, inspections, or reporting.

Step 4: Get an EIN 

An Employer Identification Number (EIN) is like a Social Security number for your business, and the IRS uses it to identify your business for tax purposes. If you plan on hiring employees down the road, you must get an EIN to report taxes and other information to the IRS. Also, if you want to open a business account, many banks require you to have an EIN. 

Luckily, applying for an EIN is a simple, free process that you can do online. Here’s how to do it:

1. Visit the IRS EIN application page.
2. Make sure you’re eligible to apply online. You must have a valid Taxpayer Identification Number (TIN), such as a Social Security number.
3. Complete the application by providing information about your business, such as the legal name, address, and the type of entity.
4. Once you’ve completed the application, submit it online. If everything is in order, you’ll receive your EIN immediately upon completion.
5. Make sure to keep a record of your EIN.

Step 5: Open a bank account for your sole proprietorship

Opening a separate bank account for your business helps keep your finances organized and makes it easier to track income and expenses. It also adds a level of professionalism to your business operations. For a more in-depth explanation, check out our article on how to open a business bank account.

Step 6: Get insurance for your sole proprietorship 

When running a sole proprietorship, unexpected events can happen, from natural disasters and theft to customer injuries and lawsuits. That’s why it’s a good idea to get business insurance so you can protect your sole proprietorship from these unforeseen setbacks. Without it, you might face hefty out-of-pocket expenses that could threaten the survival of your business.

The Texas Department of Insurance and the Small Business Administration (SBA) are excellent resources for learning more about business insurance and finding the right coverage for your needs. You can also check out our article on business insurance for more information. 

Step 7: Maintain compliance: Report and pay your taxes

Staying on top of your tax obligations in Texas helps you avoid penalties and keeps your business on solid financial ground. Follow these tips to help you stay compliant:

• Keep accurate records of all your business earnings and spending so you can make tax filing easier and take advantage of all eligible deductions.
• Consider using accounting software like Quickbooks to track your finances and generate reports.
• Consult a tax advisor or consultant who can help you maximize deductions and stay compliant with all tax requirements.
• Stay in the loop about any tax law updates that might affect your business. The IRS and Texas Comptroller websites are good resources for current information.

Sole proprietorship vs LLC in Texas: What’s the difference?

When starting a business in Texas, you might wonder whether to go with a sole proprietorship or limited liability company (LLC).

As mentioned before, a sole proprietorship involves a single individual running a business without the need for formal organization. You have complete control over all business decisions, but you’re responsible for all business debts and legal liabilities because there’s no formal distinction between you and the business. This means your personal assets could be at risk in the event of a legal dispute. 

On the other hand, an LLC in Texas offers limited liability protection, which shields your personal assets from business debts and legal claims. Creating an LLC involves filing a certificate of formation with the Texas Secretary of State. The process requires more paperwork and fees compared to a sole proprietorship, but you benefit from better legal protection and more flexible tax options. Additionally, an LLC provides versatility in management structure, allowing you to choose between member-managed or manager-managed operations.

Benefits of operating a sole proprietorship in Texas

Starting a business in Texas as a sole proprietor offers several advantages, making it an attractive option for many entrepreneurs. Here are some of the main benefits:

Low cost

There's minimal paperwork involved, and you don't have to pay state filing fees to form your business. This makes it an excellent choice if you're looking to start small and keep your expenses in check.

Easy setup

You can start operating quickly without complex registration processes. However, depending on your business activities, you may need to obtain necessary licenses and permits or register a "doing business as" (DBA) name. For example, if you sell taxable goods or services in Texas, you must apply for a Texas sales and use tax permit.

Flexibility

As a sole proprietor, you have complete control over your business decisions, operations, and schedule.

Direct profits

All the profits from your business go directly to you, as there are no shareholders or partners with whom to share the earnings.

Simplified taxes

You report business income on your personal tax return rather than filing separate business taxes. However, you're still required to keep thorough records of income and expenses.

Local resources

Texas offers several resources for small business owners, from local Small Business Development Centers (SBDCs) to various state programs aimed at supporting entrepreneurs.

Disadvantages of operating a sole proprietorship in Texas

Operating a sole proprietorship in Texas can come with several disadvantages, including:

No asset protection

The lack of personal liability protection is arguably the biggest drawback for sole proprietorships. In Texas, you and the business are considered the same entity. This means your personal assets, such as your home or savings, are unprotected from business debts or legal claims. If your business encounters financial trouble, your personal belongings could be in peril.

Limitations for growth and advancement

Since you're managing everything on your own, it can be difficult to handle a large workload or expand your operations.

Difficulty raising capital

Raising capital can be tougher for sole proprietors. Investors and banks might be hesitant to provide funding because sole proprietorships lack the formal structure and perceived stability of corporations or LLCs. You may have to rely on personal savings, loans from family and friends, or smaller credit lines.

Higher tax burden

While tax filing is simpler, the tax burden can be higher. Sole proprietors pay self-employment taxes, which cover Social Security and Medicare contributions. However, Texas's lack of state income taxes can help offset some of this cost.

Less credibility

Some customers and clients may perceive a sole proprietorship as less established or credible than an LLC or corporation, especially for larger projects or contracts.

How much does it cost to become a sole proprietor in Texas?

There’s no cost to start operating as a sole proprietor in Texas. You can begin doing business without any official setup process or fees. However, if you want to use a business name other than your personal name (known as a DBA or "doing business as" name), you'll need to file an Assumed Name Certificate with your local county clerk. This certificate usually costs between $15 and $24, depending on the county.

How are sole proprietorships taxed in Texas?

Operating your business as a sole proprietorship can simplify your tax situation compared to other business structures, since you can report income from your business on your personal tax return in most cases. However, other factors like self-employment tax and estimated tax payments can complicate the picture.

Income taxes

As a sole proprietor, you’ll report your business income and expenses on your personal income tax return using Schedule C (Form 1040), which calculates your net profit or loss. The net profit from your business is then included in your total income and taxed at your individual tax rate.

One great advantage is that Texas doesn’t have a state income tax. This means you won’t have to pay state income tax on your business earnings, which can simplify your tax obligations and potentially save you money.

Self-employment taxes

While you’re spared from state income tax, you’re still responsible for federal self-employment taxes, which cover Social Security and Medicare contributions. As a sole proprietor, you’ll need to pay both the employer and employee portions of these taxes, which total 15.3% of your net earnings. You report this on Schedule SE (Form 1040).

Sales tax

As mentioned before, if your business sells goods or services subject to sales tax, you’ll need to collect this tax from your customers and remit it to the Texas Comptroller of Public Accounts once you get your sales and use tax permit. Depending on your total sales volume, you must report and pay the collected sales tax on a monthly, quarterly, or annual basis.

Estimated taxes

Since sole proprietors don’t have taxes withheld from their business income, you’ll likely need to pay estimated taxes quarterly. This helps you avoid underpayment penalties and ensures you’re not hit with a large tax bill at the end of the year.

Texas resources for small businesses

Texas is notable for giving strong support to its entrepreneurial community through state funding and educational outreach. Here are some recommended resources for small business owners in Texas:

• Texas Small Business Development Center: The state government works with the federal Small Business Administration to provide this resource for business owners seeking funding, education, or regulatory information.
• Texas Small Business Credit Initiative (TSBCI): Look for lenders that participate in TSBCI, a Texas program that guarantees loans that banks make to small businesses. With their loans guaranteed, these banks are often able to offer small businesses more financing options and better terms than other banks.
• Skills for Small Business: This grant program supports businesses with under 100 employees in training their employees. Employers can potentially access up to $2000 per employee in training grants. 
• Micro-Business Disaster Recovery Loan Program: Rebuilding your business after a disaster can be especially tough for a sole proprietor, which is why this Texas program offers affordable disaster-recovery loans to owners of businesses with fewer than 20 employees. 
• Governor's Small Business Resource Portal: Another go-to source of information for small businesses in Texas, with licensing and permitting information, funding resources, and more.

Federal resources for small businesses

Federal government agencies, notably the US Small Business Administration, can also help out Texas entrepreneurs with a variety of resources: 

• SBA Loans: The SBA helps small entrepreneurs access capital by working with banks to guarantee loans. Learn about options for getting an SBA-backed loan for your small business here.
• SBIC Directory: The SBA also maintains this database of Small Business Investment Companies (SBICs), SBA-licensed organizations that invest in small businesses. 
• SBA Learning Platform: This online platform offers a huge range of educational content and training opportunities for small business owners, with relevant topics ranging from securing funding to disaster recovery. 
• Veteran Assistance Programs: US military veterans may qualify for SBA assistance that can help them start or grow their small businesses, including access to government contracting opportunities.
• America’s Seed Fund: This SBA initiative encompasses two programs, Small Business Innovation Research and Small Business Technology Transfer, that provide grants to small businesses researching innovative technologies. 

If your entrepreneurial journey starts in Texas, a sole proprietorship can be an ideal way to get your business idea off the ground or just to enjoy maximum flexibility as a professional. Handling your own bookkeeping, too? Check out QuickBooks Solopreneur, a powerful bookkeeping suite tailored to the needs of the self-employed and sole proprietors.

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