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 businesses opt to form corporations, thanks to the protections and financial benefits this business type provides to the business owner.
Starting a Texas corporation can seem confusing, but the process is fairly straightforward once you know the correct actions to take. You can even get advice and assistance from business services like ours along the way.
In this guide, we’ll take you through the steps to form your Texas corporation successfully and comply with state laws.
Your Texas corporation won’t be officially formed until you file your Certificate of Formation with the Texas Secretary of State. While this is the major step you’ll need to take, there are other important actions to take before and after this registration that you’ll need to know about.
We’ll walk you through the 10 steps in more detail:
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 business name. In general, you’ll need to avoid words like “bank” or “credit union” and must register a distinct name that no other Texas business has taken.
To find out if a name is available, you can use the corporate business search feature on the Texas 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:
For instance, if your desired name is “Lone Star Architects,” your official name might become “Lone Star Architects Co.” or “Lone Star Architects, Inc.”
If you’d like to reserve your name, you will log on to the SOSDirect site and complete 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. There’s also a 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 business, you can reach out to a business service like ours 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 email@example.com. For a small 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 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 seeking 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 also a fee for this filing.
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Once your name is official, you can 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.
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 certain state correspondence on your business’s behalf. All Texas corporations must assign a registered agent.
Here are the rules for selecting a registered agent in Texas:
Also, registered agents in Texas must sign a consent form agreeing to serve as a registered agent for your corporation. This form will not be turned in to the Texas Secretary of State but should be kept for your own records.
Your registered agent could be someone on your board. You could also serve as your registered agent. However, many corporations often shy away from this responsibility for the below reasons:
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 Texas Certificate of Formation online or through the mail by submitting it to the address on the form. There is a substantial filing fee required.
When filling out your Texas Certificate of Formation, the following information is needed:
The next step you’ll take in establishing your Texas corporation is creating your company’s corporate bylaws. In Texas, your bylaws must adhere to state regulations and laws and fit your company’s general reason for being.
Corporate bylaws contain rules regarding the management and regulation of your corporation. Your 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, we can provide you with a professional template that’s easy to customize.
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 usually 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.
Now, you’re ready to issue shares of stock. If you’re 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.
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 a person’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 at the IRS’s website. The process is free. Or, you could let a service like ours handle it for you
Lastly, it’s important to understand your corporation’s tax requirements. Texas has no corporate income 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 more than 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 be responsible for 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.
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.
Also, 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 what your company is required to have.
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.
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.
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.
At a minimum, you should expect to pay the fee to file your Certificate of Formation. Keep in mind that this cost does not include the fees for reserving a name, securing a domain, registering for an assumed name, or applying for business permits or licenses.
You can get help filing the forms needed to form your corporation by partnering with a professional service like ours. 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.
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:
Here’s one main drawback to consider:
Corporations are taxed depending on their corporation type. There are three main types of corporations in Texas: C corporation, S corporation, and nonprofit corporation. 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.
An S corporation is viewed as a pass-through business entity exempt from corporate taxes at the federal level. Technically, an S corporation isn’t a business entity, but a tax status. A C corporation or an LLC can apply to the IRS for S corporation status. While Texas has no corporate or personal income tax, entities taxed as an S corporation 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 taxes at the federal level. 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.
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In general, corporations in Texas file more paperwork than other business entity types. However, corporations in Texas typically have fewer reporting requirements than corporations in other states.
You’ll want to keep a corporate records book to track important events, such as meeting minutes of the board of directors.
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.
Your Texas corporation name can be changed by going through the SOSDirect site and filing a Certificate of Amendment online or by mail for a fee. You’ll have to revisit Step 1 to make sure the name is available and conforms to Texas law.
You only need one person to form a corporation in Texas.
Yes, Texas offers online filing through SOSDirect.
To dissolve your corporation, you will need to file a Certificate of Termination and pay a 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.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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