Franchising is one of the most popular paths to business ownership in the U.S., and Texas continues to rank among the top states for franchise growth. With its robust economy, growing population, and business-friendly environment, franchises in Texas are booming. But before offering or buying a franchise in Texas, it’s important to understand the legal and tax framework that governs franchise activity in the state.
This guide covers key areas of Texas franchise law, including Texas franchise registration, franchise disclosure, entity formation, and Texas franchise tax registration—so you can confidently start or expand your franchise business.
Is Texas a Franchise Registration State?
No, Texas is not a franchise registration state. Unlike registration states such as California or Illinois, Texas does not require franchisors to file or register their Franchise Disclosure Document (FDD) with the state before selling franchises.
However, franchisors must still comply with the Federal Trade Commission’s Franchise Rule, which requires that prospective franchisees receive a compliant FDD at least 14 calendar days before signing any agreement or making a payment.
That means even without a formal Texas franchise registration process, full compliance with federal franchise disclosure law is mandatory.
Business Formation & Legal Considerations
While Texas does not impose its own franchise-specific registration, there are several general legal obligations franchisors and franchisees must follow.
#1 – Registering a Business Entity
While the SOSDirect portal is a commonly used platform for filing various business documents in Texas—such as forming a corporation or registering an LLC—it is not required for all franchise-related filings. That said, franchisors and franchisees may still need to file entity-related paperwork with the Texas Secretary of State, which can often be completed through SOSDirect.
Important: Franchisors should consult the Texas Secretary of State’s official guidance to determine what filings are necessary for their specific situation. In some cases, the SOSDirect portal will be applicable; in others, different procedures or exemptions may apply.
#2 – Franchise Agreements
Texas enforces written franchise agreements under contract law. These agreements govern licensing rights, training, fees, trademarks, and non-compete clauses. Franchisors are advised to ensure their agreements align with both FTC rules and Texas-specific contract and employment laws.
#3 – Employment & Operations Compliance
Franchisees operating units in Texas must also comply with state labor laws, local business licensing, and zoning regulations. Hiring practices, wage compliance, and safety standards are critical to ongoing operations.
Understanding Texas Franchise Tax Registration
One of the most misunderstood aspects of Texas franchise law is the Texas franchise tax. Despite its name, it is not a tax exclusive to franchising—rather, it is a margin-based tax on most business entities operating in the state.
Who Must Register?
Any taxable entity operating in Texas—including corporations, LLCs, and some partnerships—must register with the Texas Comptroller of Public Accounts for the franchise tax.
This includes:
- Texas-based franchises
- Out-of-state franchisors earning revenue from franchisees in Texas
- Franchisees with an LLC or corporate structure
Do You Need a Franchise Lawyer in Texas?
While Texas franchise law is relatively straightforward compared to registration states, both franchisors and franchisees benefit from professional guidance. A qualified franchise attorney can:
- Ensure your FDD and agreements comply with federal law
- Help structure your entity for tax efficiency and liability protection
- Clarify your obligations under Texas franchise tax registration rules
You may also want to consult a CPA with franchise experience for help with state filings and compliance.
Thinking About Starting a Franchise in Texas?
Texas makes it easy to enter the franchise market—but that doesn’t mean it’s risk-free. Understanding the key components of Texas franchise registration, tax rules, and compliance standards is essential to protecting your business and avoiding penalties.
If you’re ready to get started, FranNet is here to help. One of our expert franchise consultants will evaluate your goals and abilities to find the right franchise for you. We’ll guide you through the process from start to finish so you can make an informed decision. Schedule your free consultation today!