Known as the Lone Star state, Texas currently ranks 2nd in the number of small businesses operating in a state. According to the figures released by the Small Business Administration (SBA) for 2020, Texas has 2.8 million small enterprises, representing 99.8% of the state’s total enterprises. Small businesses employ 45.1% of the total workforce.
Several factors contribute to Texas’ growth in popularity for startups, including the state’s pro-business approach, competitive tax incentives, an excellent infrastructure, easy access, and reliable workforce. No wonder the state is attracting businesses from within the US and from abroad.
Reasons Making Texas a Hotbed for Startups
Texas has the second largest population in the US, and its numerous major cities have developed universities and community colleges, ensuring a steady flow of skilled and talented graduates. These young people eagerly take up the new jobs created by startups. This is just one of the reasons startups are flocking there. Here are the rest:
Laws that benefit businesses taxwise make some states more attractive to startups than other states. One of the main tax savings that startups have in Texas is that they can deduct their operating costs and other business-related expenses from the profit of their gross revenues. Additionally, an amount equal to their annual asset depreciation is included in the business balance sheet, offering tremendous tax savings for business owners.
According to the Tax Foundation's State Business Tax Climate report of 2019, the state has no individual or corporate income tax, adding to the already attractive startup location.
Easy State Compliance
According to The Really Useful Information Company (TRUiC), Texas regulations make it easier for businesses to form and operate in the state. The LLC formation requirements and process have been simplified and an application can be made online.
For the LLC formation, startups in Texas need to meet the state’s naming requirements. They also need to provide the state with the principal street and mailing address of the entity; the type and purpose of the business; the chosen registered agent, and the organizer’s name. The startup also needs to complete the name and address of each of the managers, and if there are none, then the same details of each initial member. The only other requirement is that any additional provisions in the certificate of formation must be consistent with the law.
The operating agreement for an LLC in Texas is called a “company agreement.” This is where the rules are laid out about each member’s responsibilities, the admittance of new members; profit and dividend distribution, transferring and terminating memberships, and the rules for any future operating agreement amendment process.
In the absence of an operating agreement, any disputes that can’t be resolved by the members of the LLC are determined according to the state’s LLC statute.
Having a central location and a state-of-the-art transportation network ensures that businesses in Texas have fast access to markets everywhere. Whether a startup needs to move things over land, sea, or air, there are plenty of airports, public roads, railway lines, and seaports ensuring speedy dispatch or arrivals.
Several states come to mind when people think of innovation, and in recent years, Texas has joined these ranks. Events like the annual South by Southwest (SXSW) showcase and celebrate tech and media, bringing more visitors to the state.
Some of the state’s most advanced industries include computer tech, manufacturing, aerospace, aviation, and defense. Texas is also known for its industries based on energy, petroleum refining, biotechnology, and information technology.
Business Friendly Climate
A business-friendly climate arises from a combination of factors, including, transparency and a regulatory structure designed to allow businesses to succeed. Startup owners appreciate the low tax burden and the state’s commitment to maintaining this position.
One of the largest and most competitive deal-closing funds in the US is the Texas Enterprise Fund, showing that the state is serious about keeping its position as the 9th largest economy when compared to all the world’s nations.
Location and infrastructure, ease of business formation, tax incentives, and business-friendly climate make Texas a preferred state for startups. Besides all the reasons that attract businesses to the state, Texans are proud to stay and work in a state that offers them a comparatively low cost of living, cultural and recreational diversions.