Corporate · Multi-Practice 11 min read

Starting a business in Texas: the legal checklist most founders skip.

The filing is easy. What follows — the operating agreement, the IP assignments, the employment infrastructure, the contracts that protect you when things go sideways — is where founders discover what they missed. A GC's honest checklist of what actually needs to happen, in what order, and why.

Practice areas this article routes to

Corporate Intellectual Property Employment Real Estate

If you read nothing else

Most founders get the formation right and skip everything after it. The three decisions that cost the most to fix later: no operating agreement between co-founders (the default Texas BOC rules were not written with your deal in mind); IP owned by founders personally rather than the company (every investor and every acquirer will find this); and no contractor IP assignment agreements (your developer may legally own your product). None of these require a lawyer to understand. All of them require one to fix correctly.

Call Chuck Kraus: (682) 529-7177

I've built legal departments from scratch at three companies — and every time, the early decisions about entity structure, IP ownership, and founding-team agreements either created a clean foundation or created cleanup work that took years. The cleanup is always more expensive than doing it right.

I also see the other side: business owners who come to me at the moment of a transaction, a dispute, or a key hire and discover that something they could have addressed for a few hundred dollars in year one now requires a negotiated solution in year five. The operating agreement that was never signed. The IP that was developed before the company was formed and never assigned to it. The co-founder who left two years ago and still technically owns 30% of the company because there was never a vesting schedule.

This article is a working checklist, organized by phase. It is not exhaustive — the specifics depend on your business type, your structure, and your growth plans. But it covers the items I've seen create the most expensive downstream problems when they're skipped.

Entity selection: the decision that shapes everything downstream

The entity type you choose determines how you're taxed, how you raise capital, how decisions are made, and how hard it is to add partners or sell the company. Most Texas founders default to an LLC without thinking through whether it's the right structure for where they want to go.

Texas LLC
Most common · Recommended for most founders
Tax treatment
Pass-through by default; can elect S-corp or C-corp taxation
Liability protection
Yes — personal assets separate from business debt
Governance
Flexible — governed by operating agreement; minimal statutory formality
Best for
Operating businesses, professional services, real estate, family businesses, most SMBs
Delaware C-Corp
Venture-backed · Pre-IPO
Tax treatment
Corporate-level tax plus shareholder tax on distributions (double taxation)
Liability protection
Yes
Governance
Board of directors, officers, annual meetings, stock ledger — more formal
Best for
VC-funded startups, companies planning to grant ISOs, companies planning to go public
S-Corporation
Tax election · Restricted use
Tax treatment
Pass-through; can reduce self-employment tax with reasonable salary structure
Liability protection
Yes
Governance
Corporate formalities required; stricter ownership rules
Best for
Profitable service businesses where SE tax savings justify the added complexity; max 100 shareholders, one class of stock

The right answer depends on your tax situation, your ownership structure, whether you'll take outside investment, and whether you want to eventually sell. It's worth a single conversation with a business attorney and your accountant before you file — because converting from one structure to another later is possible but has tax and legal consequences that are almost always more expensive than getting it right at formation.

The formation checklist

Three phases, ordered by when each item needs to happen. The "flag" note under each item is the specific problem that shows up when it's skipped.

Phase 1 — Formation
Before you open a bank account or sign your first contract
Day One
File Certificate of Formation with Texas Secretary of State
For a Texas LLC: Form 205. For a corporation: Form 201. $300 filing fee. Sets the legal name, registered agent, and management structure. Can be filed online at sos.state.tx.us.
Appoint a registered agent with a Texas street address
Required by law. Must have a physical Texas address and be available during business hours. Professional registered agent services run $50–$150/year and keep your personal address off the public record.
Obtain an EIN from the IRS
Federal Employer Identification Number — required to open a business bank account, hire employees, and file taxes. Free, immediate, applied for at irs.gov. Do not pay a third party to do this for you.
Draft and sign the operating agreement (LLC) or organizational documents (corp)
The foundational governance document. For a single-member LLC it establishes basic operating rules and confirms sole ownership. For a multi-member LLC it must address: ownership percentages, capital contributions, profit and loss allocation, decision-making authority, transfer restrictions, and what happens if a member leaves.
Without this: The Texas BOC default rules govern — treating all members equally regardless of contribution, requiring unanimity for major decisions, and providing no buyout mechanism. These defaults exist to fill gaps, not to reflect your actual agreement.
Open a dedicated business bank account
Required to maintain the liability protection your entity provides. Commingling personal and business funds is one of the primary grounds for piercing the corporate veil — a court ruling that holds you personally liable for the business's debts. All business income and expenses run through the business account, not your personal one.
Run a federal trademark clearance search on your business name and brand
Filing an LLC name in Texas prevents another Texas entity from using that name. It does not give you trademark rights and does not prevent a business in another state from using the same name. A clearance search identifies conflicts before you invest in a brand. File a federal trademark application promptly if the name is clear.
Without this: You build a brand for two years, receive a cease-and-desist from a registered trademark owner in another state, and face a rebrand at the worst possible moment — when the business has momentum and the name has value.
Phase 2 — First 90 Days
Before your first hire, your first contractor, or your first paying client
First 90 Days
Assign all pre-formation IP to the company
Any intellectual property developed before the company was formed — software, designs, brand assets, processes — is owned by the person who created it, not the company, unless it is formally assigned. This includes work the founder did on their own time before forming the entity. The assignment is a written agreement transferring ownership from the individual to the company.
Without this: The company's most valuable assets may legally belong to the founders personally. Every investor and every acquirer will discover this in due diligence.
Draft your master services agreement or client contract
The contract governing your relationship with clients or customers. At minimum it should address: scope of work and change order process; payment terms and late payment consequences; IP ownership of deliverables; limitation of liability; dispute resolution; and termination rights. Use your own form — a client's form is drafted to protect the client.
Draft your independent contractor agreement with IP assignment clause
Any contractor, freelancer, or vendor who creates anything — code, content, design, systems — must sign an agreement that explicitly assigns ownership of all work product to your company. Under U.S. copyright law, a contractor owns their work product by default unless a written agreement says otherwise.
Without this: Your web developer owns your website. Your designer owns your logo. Your engineer may own your product. This is discovered in due diligence, not before.
Draft your confidentiality and NDA template
A standard NDA for use with potential partners, vendors, and clients before sensitive information is shared. One-way (protecting only your information) or mutual (protecting both parties) depending on the relationship. Your NDA should define what is confidential, the obligations of the receiving party, the term of the obligation, and the remedy for breach.
Draft employment agreements and offer letter templates for first hires
At minimum, employment agreements for key hires should address: compensation and benefits; IP assignment (all work created during employment belongs to the company); confidentiality obligations; at-will status confirmed; and, where appropriate, non-solicitation of clients and employees. Non-competes, if used, must comply with the CNCA — see Article 7 in this series.
Register for Texas Franchise Tax and understand your filing obligations
Most Texas entities are subject to the franchise tax. The no-tax-due threshold was $2.47M in annualized revenues as of 2024 — businesses below that threshold must still file a public information report annually. Failure to file results in forfeiture of the right to conduct business in Texas, which can affect your ability to enforce contracts and maintain liability protection.
Phase 3 — Ongoing Corporate Hygiene
Annual and event-triggered obligations that preserve what you built
Ongoing
File annual Public Information Report with the Texas Comptroller
Due by May 15 each year for most entities. Confirms your registered agent, principal office address, and officer/member information. Failure to file results in forfeiture of the right to conduct business in Texas and can, in some circumstances, expose owners to personal liability for debts incurred during the forfeiture period.
Maintain corporate formalities — don't commingle
The liability protection an LLC or corporation provides depends on the entity being treated as a separate legal person. This means separate bank accounts, separate financial records, no personal expenses paid from the business account without proper documentation, and business decisions documented in resolutions or written consents where appropriate.
Review and renew trademark registrations on schedule
Federal trademark registrations require a Declaration of Use filed between the 5th and 6th year after registration, and renewal every 10 years. Missing these deadlines results in cancellation of the registration. Set calendar reminders well in advance. Your IP attorney should be tracking these, but the obligation is yours.
Update operating agreement when ownership or governance changes
Adding a member, removing a member, changing profit allocations, adjusting management rights — all of these require an amendment to the operating agreement. An operating agreement that doesn't reflect the current deal is more dangerous than no operating agreement at all, because it creates a documented record of an arrangement that no longer exists.
Trigger events that require an operating agreement update: new investment, addition or departure of a member, change in management structure, grant of equity to an employee, any agreement to allocate ownership differently than the current document reflects.
Review all contracts annually and before any major transaction
Key contracts — client MSAs, major vendor agreements, leases, loan agreements, employment agreements with key people — should be reviewed annually and before any significant transaction (sale, investment, major hire). Contracts accumulate over time; the one with the anti-assignment clause you negotiated away three years ago is the one that will matter when a buyer asks for clean title to all your agreements.

The question founders get wrong most often

I've heard some version of this question from almost every founder I've worked with early in the process: "Do I really need all of this right now? We're just starting out."

The honest answer is that most of it doesn't cost much to do right at the beginning — an operating agreement, an IP assignment, a contractor template. The cost is not in the documents. The cost is in the cleanup when the documents aren't there. An operating agreement that wasn't signed when the business was formed turns into a dispute about who actually owns what when one co-founder wants to leave or when a buyer wants clean title. An IP assignment that wasn't executed at formation turns into a negotiated solution — with the founder who has leverage, not you — at the worst possible moment.

The cost of getting it right at the start is a fraction of the cost of fixing it when it matters.

The two things worth doing immediately, before anything else: form the entity properly, and get the operating agreement signed. Everything else can follow in sequence. But the operating agreement should exist before the first dollar of revenue, the first hire, and certainly before the first time two co-founders have a disagreement about something that isn't in writing.

How I help

I've built legal infrastructure from zero three times. I know what order it goes in.

Formation is where you set the terms for everything that follows — how decisions are made, who owns what, what happens when someone leaves, and whether the business can be sold cleanly when the time comes. Done right, it's an afternoon of work and a set of documents that last years. Done wrong, it's a negotiation you have at the worst possible moment with the person who has the most leverage over you.

I work with Texas founders on entity selection, operating agreements, IP assignments, and the first-generation contracts that actually protect the business — not templates, but documents calibrated to the specific deal. When multi-practice questions arise — real estate, employment, IP registration — I bring in Scale's specialists. You get a GC perspective from day one, not a forms vendor.

The first call is fifteen minutes. It either confirms you're on the right path or identifies what needs to happen first.

Schedule a Call

Going deeper

Questions I hear from Texas founders getting started.

For most Texas small businesses and solopreneurs, a Texas LLC is the right starting structure. It provides liability protection, pass-through taxation by default, operational flexibility, and simpler governance than a corporation. A Texas C-corporation (or more commonly a Delaware C-corp) makes sense when you plan to raise venture capital, grant incentive stock options, or anticipate going public. An S-corporation is a tax election — not an entity type — with restrictions that make it unsuitable for many growing businesses. The default advice to form a Delaware C-corp for everything is wrong for most Texas businesses without VC ambitions. The right entity depends on your ownership structure, tax situation, and growth plans.

Technically no — the Texas BOC provides default rules. Practically yes — you need one. The defaults treat all members equally regardless of contribution, require unanimity for major decisions, and provide no buyout mechanism for a departing member. The operating agreement governs how decisions are made, how distributions are allocated, what happens when a member wants to leave or sell, and how the company handles a member's death or incapacity. For a single-member LLC it's less critical but still valuable. For a multi-member LLC, operating without one is a documented path to co-founder litigation.

Texas has no state income tax — a significant advantage. Most entities doing business in Texas are subject to the Texas Franchise Tax (margins tax) if annualized revenues exceed $2.47M; businesses below that threshold must still file a public information report annually. At the federal level, LLC income flows through to members' personal returns by default, subject to income tax and self-employment tax. The tax structure of your entity — LLC taxed as sole proprietorship, partnership, S-corp, or C-corp — significantly affects the total burden and should be modeled before formation.

If you have any co-owner — any percentage — you need buy-sell provisions. A buy-sell agreement establishes what happens to an owner's interest on a triggering event: death, disability, divorce, departure, bankruptcy, or a desire to sell to a third party. Without one, those events produce outcomes controlled by state law and courts — almost never what the remaining owners would have chosen. Key provisions: triggering events covered, valuation method, funding mechanism (typically life insurance for death triggers), and a right of first refusal before a third-party sale can proceed.

Five core contracts for most businesses: a master services agreement or terms of engagement with clients; an independent contractor agreement with an IP assignment clause for any freelancers; a confidentiality agreement (NDA) template for use before sharing sensitive information; employment agreements for key employees including IP assignment and appropriate restrictive covenants; and vendor agreements for significant ongoing vendor relationships. The most expensive contract mistake new businesses make is using the client's form — it was drafted to protect the client, not you. Every business should have its own forms from the start.

Classification is determined by the actual nature of the working relationship — not by what the parties call it in their agreement. The IRS multi-factor test looks at behavioral control (does the business direct how and when work is performed), financial control (does the business control the economic aspects of the worker's job), and the type of relationship. Misclassifying an employee as a contractor exposes the business to back taxes, penalties, and interest from the IRS and Texas Workforce Commission, plus employment law liability. The label in the agreement doesn't control; the facts do.

Filing an LLC name in Texas reserves it with the Secretary of State — it does not give you trademark rights and does not prevent a business in another state from using the same name. Federal trademark registration with the USPTO provides nationwide protection. Before investing in a brand name, run a clearance search to identify conflicting registrations. Register the mark as early as possible — trademark rights are strengthened by use and registration, and early registration establishes your priority date against later filers.

Yes — every Texas LLC and corporation must maintain a registered agent with a physical Texas street address, available during business hours to receive legal and government correspondence including lawsuits. You can serve as your own registered agent if you have a Texas address and are consistently available. A professional registered agent service ($50–$150/year) keeps your personal address off the public record and ensures nothing is missed. Failure to maintain a registered agent results in loss of good standing with the state.

Texas Business Law Explore Patents vs. Trademarks vs. Trade Secrets Read Non-Competes in Texas: What Employers Need to Know Read Selling Your Business in Texas: The Owner's Roadmap Read

Formation is the cheapest time
to get this right.

Everything on this checklist is easier before the business has revenue, employees, and investors. One call, fifteen minutes, and you'll know what to do first.

Schedule a Call (682) 529-7177

This article provides general information about business formation and legal compliance in Texas and is not legal advice for your specific situation. Entity selection, tax treatment, and legal requirements vary based on your specific business type, ownership structure, and circumstances. Consult an attorney and a CPA before making formation decisions. Chuck Kraus is licensed in Texas, Minnesota, Washington State, and Canada.