Starting a Corporation in Texas | What You Need to Know

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Start a Corporation in Texas

In Texas, starting a corporation can benefit entrepreneurs looking to establish a separate legal entity for their business. Incorporating your business provides liability protection for its owners and offers potential tax benefits and a professional image. This comprehensive guide will walk you through Starting a Corporation in Texas, from choosing a corporate name to fulfilling ongoing compliance requirements. Some people consider starting a corporation since it has advantages and benefits rather than Starting an LLC in Texas.

Webinarcare Editorial Team will help you gain knowledge in starting a corporation with thorough research and market study. It would be best to cross-check all the factors in this article before forming a corporation.

How to Start a Corporation in Texas

What is a Corporation in Texas?

A corporation in Texas is a business organization recognized as a separate legal entity from its owners, also known as shareholders. When a corporation is formed, shareholders invest capital by purchasing shares of stock and, in return, become partial company owners. The corporation is managed by a board of directors elected by the shareholders to oversee the company’s operations and make important decisions. Corporations in Texas are required to have at least Three directors. One of the main advantages of a corporation in Texas is that it provides limited liability protection to its shareholders, meaning their assets are not at risk if the corporation incurs debt or is legally sued.

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Common Types of Corporations

Before you start with a corporation, you should know what type of corporation you will form. There are several different forms of corporations you can take into consideration, depending on your corporation’s objectives and ownership structure.

C-Corporation

C-Corporation is the most known type of incorporation. They have almost all corporate distinguishing characteristics. Profits are distributed to corporate owners who are taxed at an individual level. The corporation is taxed similarly to a business unit.

S-Corporation

S-Corporation in Texas is set up similarly to a C-corporation but has different tax implications and owner limits. An S-Corporation has no more than 100 stockholders and is not taxed separately. These business units must also file paperwork with the Internal Revenue Service (IRS) to obtain their status.

Nonprofit Corporation

Religious, educational, and charity institutions frequently use nonprofit businesses to run their operations without making a profit. Thus, a nonprofit corporation is exempt from paying taxes. The nonprofit organization’s gifts, contributions, or cash are reinvested in the company to fund its growth, future endeavors, or operations.

It is recommended to Start a Corporation in Texas if you would like to provide limited liability protection to your shareholders rather than Texas LLC. However, you may want to consult to LegalZoom’s Business Attorney before starting a business.

– WEBINARCARE EDITORIAL TEAM

How to Start a Corporation in Texas

To start a corporation in Texas, you must follow the below steps that, include choosing a corporate name, hiring a Registered Agent, appointing directors, filing for Certificate of Formation – For Profit Corporation, creating corporate bylaws, holding the initial board of directors, issuing stock, obtaining required licenses and permits, registering with state tax agencies, and annual reporting and ongoing compliance. All these steps are basic ones. It can be changed depending on the type of corporation you form and the nature of your business.

Step 1: Choosing a Corporate Name

The first step in starting a corporation is choosing an available name that complies with Texas naming rules. Most states require that the name of a corporation be distinguishable from other registered business names and include a corporate designator such as “Corporation,” “Incorporated,” “Company,” or an abbreviation thereof.

Here are some guidelines you must follow while naming your corporation in Texas-

  • Your business name must contain entity identifiers, such as “Incorporated,” “Limited,” “Corporation,” or “Company,” or an abbreviation, such as “Inc.,” “Co.,” or “Ltd.”
  • Exclude any words in your business name, such as “Trust,” “Bank,” “Credit Union,” or “Trustee,” or words related to a government agency, such as “FBI,” “State Department,” or “Treasury.”

To check the availability of your desired corporate name, you can search the Texas Secretary of State‘s business name database and Business Name Search in Texas. If the name is available, you may choose to reserve it for a specific period of 120 days by filing a name reservation application and paying the online name reservation fee of $40 and mail name reservation fee of $40. If your corporation plans to operate under a name other than its legal name, you may also need to register a fictitious or “doing business as” (DBA) name.

The DBA filing can be done by two methods, by mail and in person., which costs around Varies by county. In addition, the DBA’s validity in Texas is ten years, which you can file in Texas Secretary of State.

You can check out How to File a DBA in Texas for clearer understanding.

Step 2: Hire a Registered Agent

Hiring a Registered Agent is essential in starting a corporation. Registered Agent is a person or company responsible for receiving important legal documents, tax notices, and other correspondence on behalf of your corporation. They ensure that your corporation remains compliant with state regulations and requirements. There are Texas Registered Agent Services to check in forming Texas Corporation. We reviewed some of the best-registered agent services and provided features as an add-on with their packages.

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Step 3: Appointing Directors

Corporations in Texas are required to have at least Three directors, though some states may require more. Directors are responsible for overseeing the corporation’s management and making major decisions on behalf of the company. In Texas, directors must be at least 18 years old and do not need to be state residents.

When appointing directors, it is essential to consider individuals who are knowledgeable, trustworthy, and capable of making sound business decisions. Maintaining a record of appointed directors, including their names, addresses, and terms of service, is also a good idea.

Step 4: Preparing and Filing Certificate of Formation – For Profit Corporation

After you appoint the initial board of directors in your Texas corporation, the next step is to write and file a Certificate of Formation – For Profit Corporation. In writing, the Texas Certificate of Formation – For Profit Corporation, the corporation name, principal place of business, the purpose of business, Registered Agent contact information, and the names and addresses of incorporators and initial board members, should be written.

To officially form your Texas corporation, you must prepare and file Certificate of Formation – For Profit Corporation with the Texas Secretary of State. The Certificate of Formation – For Profit Corporation is a legal document that outlines essential information about your corporation, such as its name, address, purpose, and details about its stock.

The specific requirements for Certificate of Formation – For Profit Corporation vary by state, but generally, the document must include the following:

  • The corporate name
  • The purpose of the corporation
  • The name and address of the registered agent
  • The names and addresses of the initial directors
  • The number of authorized shares and their par value
  • The name and address of the incorporator(s)

Once the Certificate of Formation – For Profit Corporation are complete, please submit them to the Texas Secretary of State’s office, along with the required filing fee. Fees vary by state, but in Texas, the Certificate of Formation – For Profit Corporation filing fee costs around $300 for filing online, by mail, in person filing, or by Fax. It is crucial to provide accurate and complete information on this document, as errors or omissions may result in delays or rejection of your filing.

  • Online Filing: Create an account/Log in to the SOS site, get the e-form, fill it, and submit online. Or get the online PDF, fill it up and upload it back on the site.
  • Offline filing: Send the form by mail to or drop it off in person at Secretary of State, P.O. Box 13697, Austin, TX 78711-3697. Or Fax it to (512) 463 – 5709

Step 5: Creating Corporate Bylaws

Now you are done filing Certificate of Formation – For Profit Corporation in Texas, the next step is to draft corporate bylaws. While not always required by law, creating corporate bylaws is essential in establishing Texas corporation. Bylaws are the internal rules and regulations that govern the corporation’s operations and management. They outline the rights and responsibilities of directors, officers, and shareholders and provide guidelines for holding meetings and making decisions.

Key provisions to include in your corporate bylaws may include:

  • The corporation’s purpose and principal place of business
  • The roles and responsibilities of directors, officers, and shareholders
  • The process for appointing and removing directors and officers
  • The procedures for holding annual and special meetings
  • The methods for amending the bylaws and Articles of Incorporation
  • The procedures for issuing stock and maintaining shareholder records

Once the bylaws are drafted, they must be adopted by the corporation’s board of directors. Keeping a copy of the bylaws with your corporate records and updating them to reflect changes in the corporation or applicable laws is essential.

Step 6: Holding the Initial Board of Directors Meeting

The initial board of directors meeting is a crucial milestone for your Texas corporation. During this meeting, the directors will adopt the corporate bylaws, elect officers, and make other key decisions to set the foundation for the corporation’s operations.

The agenda for the initial board meeting may include the following:

  • Adopting the corporate bylaws
  • Ratifying any pre-incorporation actions taken by the incorporator(s)
  • Electing corporate officers (e.g., president, vice president, secretary, treasurer)
  • Designating a corporate bank account
  • Authorizing the issuance of stock
  • Approving necessary licenses, permits, and tax registrations

It is essential to keep detailed minutes of the initial board meeting, documenting the decisions made and actions taken. These minutes should be stored with your corporate records.

Step 7: Issuing Stock

Corporations in Texas are required to issue stock to their owners, also known as shareholders. When preparing to issue stock, you must determine the number of authorized shares and their par value, as outlined in your Certificate of Formation – For Profit Corporation. You may choose to issue different classes of stock, each with its rights and privileges, such as voting rights and dividend preferences.

The process for issuing stock typically involves the board of directors approving a stock issuance resolution, determining the price per share, and recording the issuance in the corporation’s stock ledger. Maintaining accurate and up-to-date records of all stock transactions, including transfers and cancellations, is crucial to ensure proper ownership tracking and compliance with securities laws.

Step 8: Obtaining Required Licenses and Permits

Depending on the nature of your corporation’s activities and location, you may need to obtain various licenses and permits to operate legally. These may include federal, state, and local requirements, such as:

  • A Federal Employer Identification Number (EIN) for tax reporting and employee withholding purposes.
  • State sales and use tax registration, if your corporation sells taxable goods or services
  • Professional or occupational licenses for specific industries (e.g., healthcare, construction, food service)
  • Texas Business Licenses, zoning permits, and health department approvals

Researching and obtaining all required Texas licenses and permits before commencing operations and maintaining compliance with any ongoing renewal or reporting requirements is essential.

Step 10: Registering with State Tax Agencies

In addition to obtaining licenses and permits, your Texas corporation may also need to register with various tax agencies. This may include registering for sales and use tax, obtaining an Employer Identification Number (EIN) in Texas for payroll tax purposes, and filing state income tax and franchise tax returns.

An EIN will serve as the tax ID for your Texas corporation. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in Texas can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

Each state has tax requirements, so consult a tax professional or Texas Comptroller of Public Accounts for guidance on your specific obligations.

Step 11: Annual Reporting and Ongoing Compliance

Once your Texas corporation is up and running, you must fulfill ongoing reporting and compliance requirements to maintain good standing. This may include filing Annual Report with the Texas Secretary of State, updating your corporate records to reflect changes in directors or officers, and staying current on any required licenses or permits.

In addition, it is essential to stay informed about changes in corporate laws and regulations that may impact your business and to seek professional advice when needed.

Paying Your Taxes in Texas

Even if you have established your corporation in Texas, pay your taxes and keep everything up to date so you won’t pay any penalty. Unlike an LLC, there is a corporate tax that every corporation in Texas has to pay. On the other hand, they must pay income taxes based on their business income. Some other types of taxes in Texas are sales tax, franchise tax (not applicable to all the states), and other state taxes.

Cost of Forming a Corporation in Texas

In forming a corporation in Texas, a filing and Annual fee must be paid. Without it, your corporation won’t operate. A corporation’s initial filing fee may vary from state to state. However, in Texas, it costs $300 for filing online, by mail, in person filing, or by Fax. The corporation in Texas also has to file an Annual Report (though it might not be mandatory, it is recommended to file one). Ensure you comply with all the necessary fees and costs so your corporation will run successfully and smoothly.

FAQs

What steps do I need to follow to start a corporation in Texas?
You will need to file the necessary paperwork with the Texas Secretary of State and pay the required fees to register your business.
Can I start a corporation in Texas even if I am not a Texas resident?
Yes, you can start a corporation in Texas even if you are not a resident of the state.
Who can help me start a corporation in Texas?
A business attorney or a business consultant can help you start a corporation in Texas.
What type of corporation should I establish in Texas?
You can either establish a C Corporation or an S Corporation in Texas.
How much does it cost to start a corporation in Texas?
The cost of starting a corporation in Texas depends on the type of corporation you are establishing and the fees associated with filing the necessary paperwork.
Can I register my corporation online in Texas?
Yes, the Texas Secretary of State’s website has an online registration system for corporations.
Is there a minimum number of shareholders required to start a corporation in Texas?
No, there is no minimum number of shareholders required to start a corporation in Texas.
Do I need to have a physical office address in Texas to register as a corporation?
Yes, your corporation must have a physical address in Texas to register with the Secretary of State.
What documents do I need to provide to register my corporation in Texas?
You will need to provide a Certificate of Formation, an Operating Agreement, and other necessary documents along with payment of the required fees.
How long does it take to register a corporation in Texas?
Corporate registration documents are usually processed within a week, after which you receive a Certificate of Authority.
Will I need to register for a tax ID number in Texas to start a corporation?
Yes, you will need to apply for a Federal Employer Identification Number (FEIN) from the IRS to start your business in Texas.
Do I need to get any licenses or permits to start a corporation in Texas?
Depending on the nature of your business, you may have to obtain various licenses and permits from state or local authorities in Texas.
Do I need to appoint a registered agent for my corporation in Texas?
Yes, every corporation in Texas must appoint a registered agent who will receive legal notices on behalf of the corporation.
What types of issues can be handled by the Texas Secretary of State’s office?
The Secretary of State’s office handles the filing of corporate documents, maintains databases on state elections, and regulates various other issues in Texas.
Can I change the name of my corporation in Texas after it has been registered?
Yes, you can file an amendment to change the name of your corporation in Texas, subject to certain limitations.
Can I register my corporation in Texas with a name that is already in use?
No, you are not allowed to register your corporation in Texas with a name that is already in use.
What is a franchise tax, and is my corporation subject to it in Texas?
A Texas franchise tax is a tax on a corporation’s taxable margin. Every corporation operating in Texas is subject to it.
When is the franchise tax due for my corporation in Texas?
Franchise tax is due by May 15th or the 15th day of the 5th month after the close of your corporation’s fiscal year (whichever comes earlier).
Do I need to have a board of directors to create a corporation in Texas?
Yes, you need to have a board of directors to create a corporation in Texas.
Can I convert my LLC to a corporation in Texas?
Yes, you can convert your LLC to a corporation in Texas by filing necessary paperwork with the Secretary of State.
Are Texas corporations subject to annual reporting requirements?
Yes, Texas corporations must file an annual report including information such as directors and officers, and business activity.
Can I designate an entity of my corporation as the main contact in Texas?
Yes, you can have an entity such as a registered agent designated as the main contact for your corporation in Texas.
Is my corporation required to file federal income tax returns in Texas?
Yes, your Texas corporation is required to file federal income tax returns.
What is the corporate tax rate in Texas?
Texas does not have an income tax rate specifically for corporations, but the franchise tax rate generally begins at 0.375% for most entities.
Can a foreign corporation do business in Texas?
Yes, foreign corporations can do business in Texas by registering with the Secretary of State and obtaining the necessary permissions and licenses.
What happens if I don’t pay the franchise tax for my corporation in Texas?
If you don’t pay the franchise tax on time in Texas, the state may take legal action against you and your corporation.
Does Texas offer any tax incentives for corporations?
Texas may offer various tax incentives for businesses that create jobs and invest in certain industries.
Are there any corporate service providers in Texas that can assist me with legal requirements?
Yes, there are many corporations service providers including legal and secretarial services that can assist you throughout your legal process.
How do I start a corporation in Texas?
You can start a corporation in Texas by filing your articles of incorporation with the Secretary of State.
What are the requirements for incorporating in Texas?
Some of the requirements to incorporate in Texas include having a unique name, appointing a registered agent, and filing your Articles of Incorporation with the Texas Secretary of State.
How long does it take to incorporate in Texas?
Typically, it takes about 2-3 weeks to incorporate in Texas, but this timeline can vary depending on several factors, including the workload of the Secretary of State’s office.
What is a Registered Agent and do I need one for my Texas Corporation?
A Registered Agent is a person or entity designated to receive legal and government documents on behalf of your Texas Corporation. You are required to have a Registered Agent for your corporation in Texas.
What type of corporation should I form in Texas?
Texas recognizes several types of corporations, including C corporations, S Corporations, Close corporations, and Nonprofit corporations. The best type of corporation for you depends on your business’s circumstances.
What is a Certificate of Formation?
A Certificate of Formation is a legal document that confirms the official registration of your corporation in Texas.
Can I file my certificate of formation online in Texas?
Yes, you can file your certificate of formation for your Texas Corporation online via the Texas Secretary of State website.
Can I reserve a corporation name in Texas?
Yes, you can reserve a corporation name in Texas for up to 120 days by filing a name reservation application with the Texas Secretary of State.
What are the filing fees for a Texas corporation?
The filing fees for your Texas Corporation depend on the type of corporation you’re forming, your name reservation, expedited filings, and mail options.
What is Texas Franchise Tax?
The Texas Franchise Tax is a state tax, also known as the Margin Tax, that corporations pay on their gross receipts or net profits earned in Texas.
Do I need a business license to start a corporation in Texas?
You do not need a business license to incorporate in Texas; however, depending on your industry and business operations, you may need other licenses, permits, or registrations.
Do I need to file an Annual Report for my Texas Corporation?
Yes, you must file an annual report in Texas and other states where your corporation does business. The report updates corporate contact and operational information.
Can I have a Texas Corporation without a physical address in the state?
If your corporation does not have a physical presence in Texas, you can still incorporate in the state using a registered agent with a physical address in the state.
What is a Certificate of Authority?
A Certificate of Authority is a legal document that authorizes a foreign corporation to do business in Texas.
What taxes does a Texas Corporation pay?
Texas corporations must pay federal and state income taxes. They must also pay Texas state taxes, such as the franchise tax.
How do I choose a name for my Texas corporation?
Your Texas corporation’s name should be unique and distinguishable from other companies registered in the state. Check the Secretary of State’s name database to check availability before choosing a name.
Am I required to have a Board of Directors if I start a corporation in Texas?
Yes, every Texas corporation is required to have a Board of Directors with at least one director.
How many directors are required in a Texas Corporation?
One director is required in Texas corporations, but more than one is recommended for optimal expertise and decision-making.
What documents do I need to file to start a Texas Corporation?
You will need to file a Certificate of Formation and select officers/directors each year when you submit your Texas franchise tax report.
What is Texas Unemployment Insurance Tax?
The Texas Unemployment Insurance (UI) Tax is designed to protect employees who lose their jobs through no fault of their own. It operates within the Texas Workforce Commission.
How do I file my name reservation?
You can file online or through mail with the Texas Secretary of State.”
How do I choose my corporation’s officers and directors in Texas?
You choose and/or change officers during the corporation’s annual shareholder meeting. Board members and directors are usually selected through shareholder voting.
What is a Texas Registered Agent?
A registered agent is someone designated to channel official government documents to appropriate unauthorized persons within the corporation structures such as members, officers, or employees.
How do I change my corporation’s address in Texas?
To modify your corporation’s physical or mailing address in Texas, you must register an amendment to the certificates of label and franchise tax registration in the Texas Secretary of State system.
Can I get help or consult in the corporation formation process?
Yes, professional consultants with familiarity with Texas jurisdiction, such as lawyers or incorporating services from experts like LegalZoom, can provide guidance throughout the corporation formation process.
Can I apply for an EIN during my incorporation process in Texas?
Yes, you can apply for Government Tax ID or Employer Identification Number (EIN) at the time of your incorporation online at the Internal Revenue Service electronic site.
What is the difference between an S Corp and a C Corp in Texas?
One of the main differences between an S Corporation, a small-scale, pass-through entity consists of not being subjected to federal tax on a corporate level in Texas. At the same time, C corporations operate independent of their stakeholders, are theoretically able to perform an incredible level of growth.
What is the difference between a Texas nonprofit Corporation and a business Corporation?
A business corporation is designed to generate income/revenue, while a Texas nonprofit corporation carries out social, educational, charitably business services. Additionally, a corporation operating with a charitable LLC recognizes that while it can’t make possible personal profits for owners, there aren’t any limitations on raisings and distributing profits for company purposes involving charitable non-profit contributions to society.”

Also Read

How to Save Money While Forming Your Texas Corporation

One of the first steps to saving money when forming your corporation is to carefully consider your business structure. The type of business entity you choose will have a significant impact on the cost of formation and ongoing operational expenses. A sole proprietorship or partnership may be cheaper to establish but could leave you personally liable for business debts. On the other hand, forming a corporation can provide liability protection for owners and shareholders, ensuring that their personal assets are not at risk.

When deciding on a business structure, consider the long-term goals and needs of your business. While a corporation may have higher initial costs, it can offer tax advantages and help attract investors in the future. Consulting with a legal or financial professional can help you make the best decision for your specific situation.

Another way to save money when forming your Texas corporation is to do some of the legwork yourself. Many entrepreneurs choose to use online incorporation services or DIY kits to save on legal fees. While it’s important to seek advice from professionals for complex legal matters, simple tasks like filing paperwork or obtaining an Employer Identification Number (EIN) can often be done independently.

Additionally, timing can play a role in saving money on incorporation costs. Some states offer reduced or waived fees for forming a corporation during certain times of the year. By researching the fee structures of the Texas Secretary of State’s office and monitoring any potential discounts or promotions, you may be able to secure savings on your incorporation expenses.

Beyond the initial formation costs, there are ongoing operational expenses to consider when starting a corporation. One way to save money in the long run is to invest in quality accounting and financial management tools. By staying organized and tracking your expenses efficiently, you can identify areas where costs can be reduced or eliminated.

Furthermore, careful budgeting and financial planning are essential for maintaining the financial health of your corporation. Creating a detailed business plan that outlines projected expenses and revenue streams can help you make informed decisions and avoid unnecessary expenditures. By regularly reviewing your financial statements and monitoring your cash flow, you can identify opportunities for cost savings and allocate resources more effectively.

In conclusion, forming a Texas corporation doesn’t have to break the bank. By carefully considering your business structure, taking on some tasks yourself, and staying on top of your finances, you can save money during the incorporation process and beyond. With thoughtful planning and strategic decision-making, you can set your corporation up for success while maximizing your financial resources.

Conclusion

Starting a corporation in Texas involves several critical steps, from choosing a corporate name to fulfilling ongoing compliance requirements. Following the steps outlined in this guide and seeking professional advice when needed, you can successfully establish your Texas corporation and enjoy the benefits of limited liability, potential tax savings, and a professional business image.

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