Texas Corporation

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Have you decided to start a new business in Texas? There are a few business types that startup companies can choose from. While there are pros and cons to each, many Texas companies opt to form corporations, thanks to the protections and financial benefits this business type provides.

Starting a Texas corporation can seem confusing, but the process is fairly straightforward once you know the correct steps. You can even receive advice and assistance from business services like ZenBusiness or tax accountants along the way.

In this guide, we’ll take you through all the steps to form your Texas corporation successfully and comply with state laws.

How do I form a corporation in Texas?

Steps to form your Texas Corporation

  1. Name Your Corporation
  2. Appoint Directors
  3. Choose an Texas registered agent
  4. File the Texas Certificate of Formation
  5. Create Corporate Bylaws
  6. Draft a Shareholder Agreement
  7. Issue Shares of Stock
  8. Apply for Necessary Business Permits or Licenses
  9. File for an EIN and Review Tax Requirements
  10. Submit Your Corporation’s First Report

Your corporation in Texas won’t be officially formed until you file your Certificate of Formation with the Secretary of State. While this is the major step you’ll need to take, there are other important steps before and after this registration that you’ll need to know about.

We’ll walk you through the 10 steps in more detail:

Step 1: Name Your Corporation

To begin, you’ll want to decide on a name for your Texas corporation. You need to consider your brand, marketing potential, and Texas law when coming up with your company name. In general, you’ll need to avoid words like “Bank” or “Credit union” and must register a distinct name that no other company has taken.

To find out if a name is available, you can use the corporate business search feature on the Secretary of State’s website. You’ll access this by logging into your SOSDirect account or registering for a new one.

Once you’ve found an available name that you like, it’s time to add a corporation designator to its end. Approved designators for Texas include:

  • Corporation (Corp.)
  • Incorporated (Inc.)
  • Company (Co.)
  • Limited (Ltd.)

For instance, if your desired name is “Lone Star Architects,” your official name might become “Lone Star Architects, Limited” or “Lone Star Architects, Inc.” 

If you’d like to reserve your name, you will log on to the SOSDirect site and fill out the Application for Reservation or Renewal of Reservation of an Entity Name online or by mailing it to the business address on the form. If mailing, include two copies. You’ll also pay a $40 filing fee. This reserves your name for up to 120 days.

Nearly every company uses a business website to draw traffic, engage customers, or sell products. To secure your own, you’ll need to register your domain name. To learn what’s available, you can perform a domain search online. When you find an available domain that suits your company, you can reach out to a business service like ZenBusiness to secure the domain on your behalf.

It’s also wise to check on whether or not you’re infringing on an existing trademark, which you can do at the state and federal levels. You can search for an existing Texas trademark through the Texas Secretary of State by calling them at (512) 463-9760 or emailing trademarks@sos.texas.gov. For a $1 fee, you can also search for state trademarks using the SOSDirect database. You can search for an existing federal trademark through the United States Patent and Trademark Office (USPTO) database

If you want a trademark of your own, you can register one in Texas with the Trade or Service Mark Application. There is a $50 filing fee to process this request. A state trademark only applies within that state’s boundaries. If you’ll be conducting much of your business out of state, you can also think about applying for a federal trademark

Some companies sell products or services under different names. If you plan to do this, you’ll need to secure a “doing business as” (DBA) name, otherwise known as an assumed name in Texas. To do this, you’ll fill out the Texas Assumed Name Certificate. There is a $25 fee for this filing.

Step 2: Appoint Directors

Once your name is official, you’re ready to start appointing your corporation’s board of directors. In Texas, you’re required to name at least one director to your board. Texas law also requires you to appoint a president and secretary, but the same person can fill all three roles.

Your director(s) will be responsible for ensuring your corporation upholds its bylaws and protects its shareholders’ financial assets. If you have more than one director, they will hold regular meetings to discuss corporate affairs and plans.

Step 3: Choose a Texas Registered Agent

Now, it’s time to choose a registered agent for your Texas corporation. Your registered agent will be responsible for accepting legal documents, tax notices, and state correspondence on your company’s behalf. All Texas corporations must assign a registered agent.

Here are the rules for selecting a registered agent in Texas:

  • Must be a Texas resident 18 years of age or older or an entity authorized to do business in Texas (Note that your corporation cannot be its own registered agent.)
  • Must have a residence in-state (individual) OR must have a business office in-state (entity)
  • Must be available between standard weekday work hours to receive official paperwork

Now, it’s time to choose a registered agent for your Texas corporation. Your registered agent will be responsible for accepting legal documents, tax notices, and state correspondence on your company’s behalf. All Texas corporations must assign a registered agent.

Here are the rules for selecting a registered agent in Texas:

  • Registered agents must keep set hours. Your registered agent should always be available between 9 a.m. and 5 p.m. at their business address to receive legal notices. This can leave corporation leaders tied to desks and specific locations.
  • Some personal information is disclosed for all registered agents. Some of your registered agent’s private information will be disclosed publicly when they agree to be the agent.
  • Registered agents can receive summons and subpoenas. Your registered agent can receive sensitive legal notices, which could be embarrassing to your corporation if served in front of clients, partners, or investors.

For these reasons, many corporations partner with outside registered agents. If you’d like help finding a trustworthy registered agent in the Lone Star State, reach out to ZenBusiness.

Step 4: File the Texas Certificate of Formation

Next, you’re ready to file your Certificate of Formation with the Texas Secretary of State. This step will officially register your corporation with the state, allowing you to conduct business legally.

You can file your Certificate of Formation online or through the mail by submitting it to the address on the form. There is a $300 filing fee required.

When filling out your Certificate of Formation, the following information is needed:

  • The business entity name (with designator)The corporation name. This will include your designator.
  • The registered agent’s information (individual or entity; full name or business name; address)
  • The names and addresses of all company directors
  • The number of shares your company will issue (and par value of each)
  • The corporation’s business purpose
  • The organizer’s name and address
  • The date of registration (current or future date)
  • The organizer’s signature

Step 5: Create Corporate Bylaws

The next step you’ll take in establishing your Texas corporation is creating your company’s corporate bylaws. In Texas, your corporate bylaws must adhere to state regulations and laws and fit your company’s general purpose.

Corporate bylaws typically contain rules regarding the management and regulation of your corporation. Your corporate bylaws do not have to be filed with the state but should be available to every employee in your company.

If you need assistance drafting your corporate bylaws, ZenBusiness can provide you with a professional and comprehensive template that is easy to customize and enhance.

Step 6: Draft a Shareholder Agreement

Next, you’ll want to work on your corporation’s shareholder agreement. A shareholder agreement is important to draft to help prevent issues or disagreements among your shareholders. This agreement typically includes details on shareholder responsibilities, financial obligations, voting structures, and stock shares.

This agreement should uphold your bylaws and company purpose. It needs to be reviewed, approved, and signed by every shareholder in your corporation.

Step 7: Issue Shares of Stock

Now, you’re ready to issue shares of stock. If you are a for-profit corporation, this step is mandatory. You detailed your total number of stock shares and their values on your Certificate of Formation, so it’s important to ensure you follow these rules when you’re ready to issue shares.

Your corporation can issue shares privately or publicly. If you issue stock privately, the shares are often split among your corporation’s directors and shareholders. If you issue stock publicly, the shares become available on the public market.

If you decide to issue shares publicly, you’ll need to follow U.S. Securities and Exchange Commission (SEC) laws and file quarterly stock forms. Be sure to also meet the requirements of the Texas State Securities Board.

Step 8: Apply for Necessary Business Permits or Licenses

Texas does not require corporations to obtain a general business license to operate. Depending on your industry, though, you might be required to obtain special licensing. You can find out if your corporation needs to obtain specific licensing or permits by visiting the Texas Economic Development’s Business Permit Office webpage.

In addition, some counties and cities in Texas have special licensing and permit requirements for businesses. You should reach out to your local government office to determine your company’s obligations.

Because licensing can be industry-specific and be federal, state, or local, there isn’t one single place to check to see if your business has all the licenses and permits it needs. You’ll need to do some research or hire someone to do it for you.

Step 9: File for an EIN and Review Tax Requirements

One of the final steps you’ll take is setting up your Texas corporation to handle taxes through the Internal Revenue Service (IRS). Your corporation will need to obtain an Employer Identification Number (EIN). This EIN will work similarly to an individual’s Social Security number. It allows you to file taxes, pay employees, open business financial accounts, and apply for financing opportunities.

You can apply for an EIN online at the IRS’s website. The process takes a matter of minutes and is free.

Lastly, it’s important to understand your corporation’s tax requirements. Texas has no corporate income tax or personal income tax, but your corporation will be required to pay the Texas franchise tax. If your corporation makes less than the threshold amount ($1.18 million for 2020 and 2021), no tax is due. You’ll also avoid paying this tax if you meet these conditions.

That threshold is typically adjusted slightly over time, but smaller businesses usually don’t have to worry about it. However, the state does want you to tell them that you don’t owe anything for this tax by filing a No Tax Due Report (Form 05-163) and a Public Information Report every year.

If you do make over the threshold amount and need to pay the franchise tax, the calculations can get very complicated very quickly, so it’s advisable to seek a qualified accountant. Basically, though, you would only pay a percentage of the “taxable margin” of your total revenue, and the maximum is 1%. Instead of the No Tax Due Report, you’ll file either the EZ Computation Form or Long Form.

Texas has instructions for filing these reports online here and an overview of the franchise tax here.

You’ll also be required to set up a wage withholding account with the Texas Office of Financial Management to pay the government the taxes your employees owe for federal and other local taxes.

Finally, if you collect sales tax, you’ll be required to apply for a sales tax permit and submit this collection online through Webfile.

Step 10: Submit Your Corporation’s First Report

Texas doesn’t call it an “annual report” as most states do, but they still require a report from you every year to accompany the Franchise Tax Report described in the previous step. This is called a Public Information Report and, like most annual reports, it updates the state on basic information about your company.

How much does it cost to start a corporation in Texas?

Starting a Texas corporation can have varying costs, depending on whether you hire consultants or professionals to help you through the process. Many administrative forms are optional.

You should expect to pay a minimum of $300 to file your Certificate of Formation. Keep in mind that this cost does not include the fees you’ll pay when reserving a name, securing a domain, registering for an assumed name, or applying for business permits or licenses. 

You can receive help filing all of the forms needed to form your corporation by partnering with a professional service like ZenBusiness. We’ll provide you with an experienced professional to match you up with a registered agent, help you file official forms, and provide you with a customizable template for your corporate bylaws.

What are the benefits of a corporation in Texas?

There are many benefits to keep in mind when deciding what type of business to form. In Texas, corporations enjoy many benefits, such as liability protection and more financial freedom than most other states. 

Here are a few benefits to consider:

  • Separation between corporate and personal finances. If you form a corporation, you won’t need to worry about your personal finances being jeopardized by corporate debts.
  • Legal liability security. If you form a corporation, you won’t need to worry about being held personally liable if your company ends up in a lawsuit or another legal battle.
  • Global reach. Unlike other business entities, corporations can enjoy access to a global marketplace.
  • Respect among investors. Many businesses and partners respect companies more when they incorporate, which could lead to more business deals.

Here’s one main drawback to consider:

  • More expensive startup fees. On the downside, corporations in Texas require heftier filing fees than other business types and corporations formed in other states.

How is a Texas corporation taxed?

Typically, corporations are taxed depending on their corporation type. There are three main types of corporations in Texas: C corporations, S corporations, and nonprofit corporations. You’ll be registered as a C corporation by default unless you select another type. 

C corporations are viewed as separate business entities that are taxed twice — both at the corporate and individual levels. However, since Texas has no personal income tax, C corporations only have to worry about paying a franchise tax (if they make more than $1.18 million) and federal taxes on corporate and individual earnings.

S corporations are viewed as pass-through entities exempt from corporate taxes at the federal level. While Texas has no corporate or personal income tax, S corporations still have to pay the Texas Franchise Tax (if they make more than $1.18 million, as described above) and federal taxes on individual earnings.

Nonprofit corporations can apply with the IRS to be exempt from paying federal taxes. Most nonprofits can also apply to the Texas Comptroller of Public Accounts to be exempt from the Texas Franchise Tax and certain other state taxes.

Texas Corporation FAQs

  1. Does running a corporation in Texas involve more paperwork than running other types of businesses?

    In general, corporations in Texas file more paperwork than other business entities. However, corporations in Texas typically have fewer reporting requirements than corporations in other states.

  2. What is the difference between an LLC and a corporation in Texas?

    The main difference between a corporation and a limited liability company (LLC) in Texas is how they are taxed and managed. Corporations must usually pay taxes at the corporate level, while LLCs do not. Corporations also have to manage stock shares and report on these quarterly.

    Find out more about the basic differences between corporations and LLCs here.

  3. How do I change my corporation’s name in Texas?

    Your Texas corporation name can be changed by going through the SOSDirect site and filing a Certificate of Amendment online or by mail for $150. You’ll have to revisit Step 1 to make sure the name is available and conforms to Texas law.

  4. How many people are needed to form a corporation in Texas?

    You only need one person to form a corporation in Texas.

  5. Can I form my Texas corporation online?

    Yes, Texas offers easy online filing through SOSDirect.

  6. How do I dissolve my Texas corporation?

    To dissolve your corporation, you will need to file a Certificate of Termination and pay a $40 filing fee. You’ll also need to include a certificate of account status from the Texas Comptroller of Public Accounts showing that all remaining taxes have been paid.

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