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What is a Sole Proprietorship in Texas?
A Sole Proprietorship in Texas is an informal business structure owned by one person.
And the business owner is called the Sole Proprietor.
Sole Proprietorships are often the easiest and simplest form of business structure to create. However, that doesn’t always mean they are the best choice for small business owners.
While Sole Proprietorships have some advantages, there are also disadvantages you should be aware of.
We explain the pros and cons below, and provide step-by-step instructions if you decide to start a Sole Proprietorship in Texas.
Pro tip: Sole Proprietorships don’t protect your personal assets, so you are personally liable for claims from creditors. On the other hand, if you form an LLC, your personal assets are protected in the event of a lawsuit. Check out Sole Proprietorship vs LLC for more information.
Advantages of a Sole Proprietorship
Ease of setup and maintenance
The primary advantage of a Sole Proprietorship is how easy they are to set up and to maintain.
In fact, there are no legal documents to file in order to “create” one. If you’re doing business by yourself, you’re operating as a Sole Proprietor.
Think of it this way: once you engage in business activities, with the goal of eventually making money, you are operating as a Sole Proprietor.
For example, if you want to start a wedding planning business, the moment you begin doing business research, calling potential customers, or building your website, you’re operating as a Sole Proprietorship.
Taxation
The second advantage of a Sole Proprietorship is taxation. Filing taxes for a Sole Proprietorship business is very similar to how you already file your individual taxes.
Meaning, you already file a personal Form 1040 tax return each year. However, as a Sole Proprietorship you (or your accountant) will include a Schedule C which lists your business profits or losses.
Disadvantages of a Sole Proprietorship
There is one major disadvantage and a few other minor disadvantages of a Sole Proprietorship.
No liability protection
The main disadvantage of a Sole Proprietorship is liability protection: there is none.
If your business is sued, your personal assets (like your home, cars, and bank accounts) could be used to settle the business’s debts and liabilities.
On the other hand, if you formed an LLC or a Corporation, your personal assets are protected in the event of a lawsuit. Only the business’s assets can be used.
Tip: LLCs offer additional asset protection that Corporations don’t.
Lack of credibility
Even though you can file a DBA name (discussed below), Sole Proprietors are still often seen as being less credible.
On the other hand, if you were to form a legal business entity, like an LLC or Corporation, those are considered more official and reputable.
Converting from a Sole Proprietorship to an LLC
If you start your Texas business as a Sole Proprietorship, and then later want to convert to an LLC or Corporation, it’s a large headache with many steps involved.
There isn’t a one-step process to convert a Sole Proprietorship to LLC. In fact, there are often multiple steps and multiple filings you must make with various state departments and local governments.
For example, you need to update the state, the IRS, and the bank that your business type has changed. And if your business requires a license or permit to operate, you will need to re-apply for those as the new business. You may also need to redo contracts with your clients and vendors, and update your website and marketing materials.
So if you’re on the fence about which type of Texas business to choose, and you have the money to spend on an LLC, we recommend starting an LLC in Texas.
Sole Proprietorship vs LLC
- Quick Read: What is an LLC and what does it do?
A Limited Liability Company (LLC) is a legal entity that offers pass-through taxation and asset protection. If your LLC is sued, your personal assets – like your home, car, and personal bank account – are protected.
An LLC with one owner is called a Single-Member LLC. And the great thing about them is they are taxed just the same as a Sole Proprietorship. Check out LLC taxed as Sole Proprietorship for more details.
To start an LLC in Texas, you must file a Certificate of Formation with the Secretary of State and pay a $300 filing fee.
LLCs must also pay an LLC annual fee and appoint a Registered Agent in order to stay in compliance.
If you want to hire a company to form your LLC, we recommend Northwest Registered Agent.
If you decide you’d rather operate as a Sole Proprietorship, we have the instructions below.
How to start a Sole Proprietorship in Texas, step-by-step
The only thing you must do to start a Sole Proprietorship in Texas is simply decide to start.
Again, just by taking actions that may lead to making money means that you’re now a Sole Proprietor. You don’t have to file any legal documents to “form” your Sole Proprietorship with the state.
However, there are a few things you may need to (or want to) do in order to operate legally. For example, your business may need a license or permit to operate.
And it’s best practice to open a separate bank account to keep your personal funds separate from your business finances. Some businesses also need to obtain general liability insurance or have a business liability insurance policy.
You might also want to get a DBA (for branding), and an EIN Number (so you aren’t putting your social security number on invoices or contracts). You can claim your business name by filing with the county clerk, and you get an EIN Number from the IRS.
We’ll walk you through each of these steps below.
Step 1 – Business Planning Stage
Once you have a business idea and have decided to operate as a Sole Proprietor, it’s a good idea to establish some key components of the business.
Some things that are helpful to think about are:
- business model
- business name
- startup costs
- industry
- marketing ideas
- business address
Your business model is how you plan to make money as a Sole Proprietor – what will you sell, how it’s made, how it’s delivered, how it’s marketed or advertised, etc.
It’s a good idea to think of marketing ideas early on to help your business succeed. A good marketing plan can include developing a logo and brand name, deciding where to advertise, building a website, and developing a social media strategy.
You should also choose a primary business address. This can be an actual office address, but it doesn’t have to be. It could be your home address or you could even rent a mailbox address. The purpose is to have one designated address where all mail for the business is sent, and that you can use on official documents.
Step 2 – Name your Sole Proprietorship and Obtain a DBA
Now that you’ve done some business planning, you have the option to name your company.
By default, a Sole Proprietorship’s name is the owner’s legal name. However, if you’d rather do business under a different name, you can file a DBA name (Doing Business As name).
For example: Felipe Cruz is starting a wedding planning business. Instead of having to do business under his full name – Felipe Cruz – he’d like to do business under the name “Excellence in Events”. In this case, he’ll need to register his DBA name “Excellence in Events”.
Having a different business name can make it a lot easier to brand and market your business. It can also make your business sound larger than a one-person business.
Having said that, a DBA name is not required for a Sole Proprietorship in Texas. If you’d rather do business under your first and last name, that is 100% okay.
Note: In Texas, a DBA is technically called an Assumed Name, however, they mean the same thing.
How do I get a DBA?
To register your Sole Proprietorship’s DBA (aka Assumed Name) in Texas, you’ll need to file the assumed business name with the County Clerk in:
- the county where your business is physically located
- or every county where you conduct business, if you don’t have a physical business location.
Here’s a list of Texas County Clerks to help you get started. Check the county clerk website, or call the county clerk’s office, to find out the assumed business name process and how much the filing fee is.
Sole Proprietorships don’t file an Assumed Name Certificate with the Texas Secretary of State. Only entities (corporations, LLCs, etc.) can file an Assumed Name Certificate. See this Texas Secretary of State FAQ for more information.
Need to save time? We recommend hiring MyCompanyWorks ($119 + state fee) to file your DBA.
Step 3: Get an EIN from the IRS
By default, a Sole Proprietor uses their Social Security Number (SSN) for tax and financial reporting.
However, a Sole Proprietor also has the option of getting an EIN Number (Employer Identification Number) from the IRS.
An EIN is a number assigned to your business by the Internal Revenue Service (IRS).
The EIN identifies your business to the IRS, the same way a Social Security Number identifies a person. You can think of the EIN as your “account number” with the IRS.
An EIN is also called a Federal Tax ID Number, Federal Employer Identification Number, or FEIN. They all mean the same thing
Does a Sole Proprietor need an EIN?
We recommend getting an EIN for your Sole Proprietorship for a few reasons:
Using an EIN for your Sole Proprietorship won’t affect your taxes. You’ll still file your business taxes the same way whether you use your EIN or SSN for your Sole Proprietorship.
Getting an EIN for your Sole Proprietorship may be a good idea for a few reasons:
For safety (prevent identity theft)
By using your EIN, you don’t have to give out your SSN as much. Without an EIN, you may need to use your SSN when dealing with vendors and clients.
For example, if a client pays you more than $600 per year, you’ll need to give them IRS Form W-9.
Instead of using your SSN, you can list your EIN instead on Form W-9.
You can also use your EIN to apply to online account setups and other places you may do business.
To hire employees
If you want to hire employees for your business, you will need to get an EIN first. This is because an EIN is required for employer tax reporting purposes, (like reporting and paying payroll taxes for your employees).
Note: As a Sole Proprietor, while you are considered self-employed, you are technically not an employee. This means you aren’t required to get an EIN if you are the only person that works at your business. That said, we still recommend that you get one.
And don’t forget, if you hire employees, you’ll also need to pay unemployment tax.
Step 4 – Get business licenses
When researching whether you need to get business licenses, it’s a good idea to check for state-level requirements (like a general business license). After that, you should research requirements at the local level (requirements enforced by the county or city where you’re doing business).
Good news, Texas doesn’t require a “general” state business license for Sole Proprietors.
However, depending on your industry, and where you’re doing business, you may need an industry-specific license (like Texas occupational licenses), or a license issued by your city and county governments.
You must obtain business licenses to operate legally, whether they’re from the state or issued by a county or city clerk. And if you will sell goods to Texas consumers, you may need to register for state sales tax.
Please see our Texas Business Licenses and Permits page or these resources:
- Governor’s Business License & Permits Guide (PDF)
- Business Permit Office
- Occupational and Professional Licenses
Tip: Save time by hiring an expert. We recommend using IncFile ($99) to handle the business license research for you.
Step 5 – Maintain your business
Once you have established your Sole Proprietorship in Texas, there are a more few things to do to make your business run smoothly:
- Get a business bank account
- Maintaining business financial records
- File taxes
Why you need a Business Bank Account:
It’s important to open a separate bank account for your Sole Proprietorship.
This keeps your personal and business finances separate, and is an important part of operating a business safely.
Business bank accounts typically allow you to process more transactions per month than a personal bank account, and have other benefits.
How to Open a Business Bank Account for a Sole Proprietor in Texas:
Some banks may require a DBA in order to open a business bank account for a Sole Proprietor. We recommend calling the bank to see if a DBA is required or if you can open the business account in your own name.
While you’re on the phone, it’s also a good idea to ask about the products they offer, and what documents they require.
For example, most banks require you to bring your photo ID, and if you have them: your EIN Confirmation Letter and DBA filing.
Keep Business Records
Most states require that businesses keep certain records. There is no law specifically governing Sole Proprietorships, however, it’s a good idea to keep the following records:
- Copies of tax returns for the previous 3 years
- Copies of any financial statements for the previous 3 years
If you’re just starting out, you won’t have these records right away, and that’s okay. Just save and organize them as you do business.
We recommend establishing a specific location to store the records.
For example, a filing cabinet in your house or at the business’s office location will work fine. So will an online cloud storage system where you scan and save all of your business documents.
File and pay taxes (or hire an accountant)
As mentioned above, Sole Proprietors report the business profits or losses on their personal (Form 1040) tax return.
While you can file your personal tax return yourself (using a software like Turbotax), you may want to hire a professional to maximize your business deductions and tax credits.
If you’d like to hire a business accountant, we’ve made a list of Business Accountant Recommendations for all 50 states.
Conclusion
While a Sole Proprietorship may seem easier and less expensive than starting a formal business entity (like an LLC), it can be risky.
Sole Proprietorships don’t offer asset protection, and you’ll likely still have to file paperwork for a DBA name, a business license, and/or sales tax permit.
In general, we don’t see many good reasons to operate a business as a Sole Proprietorship, and we don’t recommend it. Sole Proprietorships don’t have any advantages over legal entities.
Instead, we recommend starting an LLC in Texas.
Note: The exception to this would be if you really don’t have money to pay for an LLC, especially if your state has expensive fees. For some, a Sole Proprietorship may be the only option for getting your business off the ground and earning profits. In this scenario, a Sole Proprietorship can be a good place to start.
You can learn more about starting an LLC in Texas in our step-by-step guide.
Texas Sole Proprietorship FAQs
What is better, LLC or Sole Proprietorship in Texas?
While starting a Sole Proprietorship in Texas is easy, the advantages end there.
Sole Proprietorships offer no personal asset protection. If your business is sued, you’re personally liable for the business debts and obligations. On the other hand, if you form an LLC, your personal assets are protected if your business is sued.
Sole Proprietors are also seen as less official and less legitimate than a separate legal entity, like a Limited Liability Company.
We recommend forming an LLC instead of a Texas Sole Proprietorship. LLCs offer personal asset protection, they are more credible – and there’s no difference between how you file taxes for a Sole Proprietorship and an LLC.
How do I make myself a Sole Proprietorship in Texas?
There is no form to file to start a Texas Sole Proprietorship. The state considers you to be a Sole Proprietor as soon as you engage in activities with the goal of making money.
However, if you’d like to do business under a name besides your first and last name, you’ll need to register a DBA (Doing Business As) Name.
Do I need to register a Sole Proprietorship in Texas?
No, you don’t need to register your Sole Proprietorship with the Texas Secretary of State. It simply exists once you decide to start a business and engage in business activities.
However, if your Sole Proprietorship will use any name other than the business owner’s first and last name, you’ll need to file a DBA (aka Assumed Name).
Then your Assumed Name Certificate needs to be filed with the county clerk’s office where your business is located, or the county clerk’s office where your business operates. That’s the only filing fee you’ll need to pay.
Additionally, you should check with an accountant in Texas about whether your Sole Proprietorship needs to register with the Texas Department of Revenue for other tax responsibilities, (like paying sales tax, employment taxes, or property taxes).
Can a DBA be a Sole Proprietorship?
A DBA isn’t a Sole Proprietorship. A DBA is just a “nickname” for something else – whether that’s a business or person(s).
Having said that, your Sole Proprietorship can do business using an assumed business name (DBA). You just have to file an assumed name certificate with the county clerk to claim your business name.
For example, the default name for a Sole Proprietorship is the first and last name of the owner (like: Bob Barkley). However, if you’re running a bagel shop, you can get a business name like “Bob’s Bagels & Sandwiches” in order to better brand and market your business.
How are Sole Proprietorships taxed?
Any profit or loss from your business is reported on a Schedule C with the Internal Revenue Service (IRS).
And the Schedule C is included with the rest of your personal tax return (Form 1040).
What’s the difference between a Sole Proprietorship and a Partnership?
A Sole Proprietorship is an informal business structure with one owner.
A Partnership, aka General Partnership, is an informal business structure with two or more owners.
While both structures have pass-through taxation, a Partnership needs to file Form 1065 at tax time, while a Sole Proprietorship doesn’t. Instead, a Sole Proprietor needs to include a Schedule C on their personal tax return.
References
IRS: Income & Expenses
IRS: Sole Proprietorships
Starting a Business in Texas
Texas Secretary of State FAQs
Texas Governor’s Small Business Resource Portal
Texas Secretary of State: Business Structure Information
Texas Economic Development: Start a Business in Texas
Texas Secretary of State: Business Start-up Guides and Resources

Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.