How to Register a Corporation in Texas?

Texas Corporation

Corporations are one of the most common business entities formed in Texas. You can form a corporation in Texas as it offers several advantages over other forms of businesses. You can even register a Texas Corporation online or offline with the office of the Secretary of State. Some of the top corporations in the state include ExxonMobil, Dell Technologies Inc., AT&T Inc., Phillips 66 Company, and Airbus Helicopters, Inc. among others. There are primarily three types of corporation you can form in Texas and they are:

• For-Profit Corporations
• Nonprofit Corporations
• Special-Purpose Corporations

What is Texas Corporation?

A traditional corporation is normally known as a C Corporation and for the purposes of taxation; it is sometimes converted to an S Corporation. A Texas C Corporation is a type of legal entity, which is separate from its owners. This simply means that even if the owner exists from the company or dies, the corporation will continue to exist. One of the primary benefits of incorporating in Texas is that a C Corporation will enjoy the rights and responsibilities that sole proprietors or individuals possess like hiring employees, owning assets, taking a loan or financial assistance, and entering contracts among others.

What are the benefits of incorporating in Texas?

There are several reasons why entrepreneurs prefer to form a corporation in Texas and these include a strong infrastructure, growth oriented industry, and trade zones. Whether you are planning to incorporate or converting an existing business to a corporation in Texas; there are significant benefits of incorporating in Texas. Let’s look at some of the top benefits:

• Advantages over other entities: A C or S Corporation has several advantages over other forms of business entities and they are:
  • Easier to raise capital
  • Ownership can be easily changed or transferred
  • Enjoys pass through taxation
  • Offers liability protection for personal assets of the owners
• Perpetual Existence: One of the top benefits of incorporating in Texas is that unlike an LLC or a sole proprietorship; a corporation has perpetual existence. This means that it will survive even if the original owner dies.
• Tax Climate: The tax climate is one of the primary reasons why entrepreneurs prefer to register a corporation in Texas. The business tax is low as compared to some of the other states and there is no personal tax.
• Business incentives: The state of Texas provides a variety of business incentive programs that assist small businesses in numerous ways. Some programs are administered by different state departments. Some of the top programs include:
  • Sales and Use Tax Exemption Program
  • Franchise Tax Credit for Qualified Research
  • Texas Leverage Fund (TLF)
  • Product Development & Small Business Incubator Fund (PDSBI)
  • Business Expansion Incentive Program of Austin
  • Research & Development Tax Credit
  • Texas Enterprise Zone Program
  • Texas Enterprise Fund (TEF)
  • Opportunity Zone Program

Starting a Texas Corporation

The central location of the state of Texas along with a state-of-the-art transportation and logistics network ensures timely access to national and international markets via sea, air, and land. If you are planning to incorporate in Texas then the first question you may ask is how to form a corporation in Texas? There are several steps involved towards helping your company become state compliant and business wise operational. Let’s look at the important aspects of the incorporation process.

1. Name Texas Corporation

A company name is one of the primary and important requirements in the how to form a corporation in Texas guide. A business name helps in creating a brand or providing a company with an identity. A business name is required in order to register a corporation in Texas. It is governed by the Texas Administrative Code, Title 1 – Administration, Part 4 – Office of the Secretary Of State, Chapter 79 – Business Entity Filings, Subchapter C – Entity Names. Some of the important guidelines while choosing a name for a Texas corporation are:

• The chosen name should include the phrase “Corporation”, “company” or any abbreviations like Inc. or Corp.,
• You can incorporate in Texas with the chosen name if it is distinguishable from any other name in the records of the Texas Secretary of State pursuant to 1 TX Admin Code § 79.38.
• It is important to ensure that your chosen name as governed by 1 TX Admin Code § 79.33, doesn’t falsely imply any governmental affiliation.
• There are certain words, prohibited or restricted pursuant to 1 TX Admin Code §79.34. They cannot be used at all.

2. Appoint Texas registered agent

The Texas Business Organizations Code (BOC) and the Texas Finance Code makes it mandatory for all businesses planning to incorporate in Texas or conduct their business in the state to hire and maintain a Texas registered agent. A registered agent can provide a variety of services and fulfill several duties like:

• Providing you guidance on how to form a corporation in Texas and also assisting you with the formation process
• Accepting or receiving on behalf of the corporation, any notice, process, or demand served by the state or state authorities
• Maintaining communication with the State of Texas related to annual compliances for businesses they represent including filing of Franchise Tax, certificate of good standing, and annual reports

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3.Choose Texas Corporation’s initial directors

Before you form a corporation in Texas, it is important to understand corporation-specific requirements like choosing the initial directors. Who chooses the directors? The incorporator or the person signing the incorporation documents (Certificate of Formation) is responsible for appointing the initial corporate directors. These directors will then serve on the board till the time of the first annual meeting of the company’s shareholders.

4.File Texas certificate of formation with Texas SOS

The most important step towards setting up a new business is Texas is applying for formation with the Texas Secretary of State. In order to incorporate in Texas, you will be required to file the Certificate of Formation – For-Profit Corporation (Form-201) with the office of the Secretary of State pursuant to TX Bus Orgs § 21.051 – § 21.059 (2019). You can register a Texas Corporation online through SOSDirect or you can mail it to P.O.Box 13697, Austin, Texas 78711-3697. You can also have it delivered to the Secretary of State, James Earl Rudder Office Building, 1019 Brazos, Austin, Texas 78701.

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5.Prepare bylaws for Texas Corporation

When you register a corporation in Texas, one of the first tasks undertaken by the board of directors is to create the corporate bylaws. It is an important document that is created specifically focusing on the industry your business belongs in and the needs of the company. It also helps in protecting the rights as well as responsibilities of owners, shareholders, executives, and directors of the corporation. Corporate Bylaws can be formally adopted only through voting by the members of the board and can only be changed by making an amendment. Since bylaws provide a type of road map for running a corporation, it includes information on the following areas:

• Basic corporate information including name and address of the business
• Number of people serving on the board (Board of Directors) and their tenure
• Officers responsible for running day-to-day operations of the business
• How and who will issue stock certificates
• Number of shares to be issued
• If a corporation forms committees then bylaws should identify such committees and outline their responsibility
• Timeline of annual and special meetings held by board of directors
• Conflicts of interest
• Procedures for amendment

6. Get EIN

One of the important aspects of how to form a corporation in Texas is tax ID. Every business needs to file taxes and for that purpose, a corporation will be required to apply for an Employer Identification Number (EIN). This is a unique 9 digit tax ID number also known as the Federal Employer Identification Number (FEIN) that is issued by the Internal Revenue Service (IRS). The EIN is often required for opening business bank accounts, and disbursing payment to employees along with filing business tax returns. If you form a corporation in Texas and if it is a new business then obtaining an Employer Identification Number is necessary.

7. Hold an organizational meeting

One of the important aspects of how to form a corporation in Texas and operate it is holding an organizational meeting. This meeting has to be held by the incorporators, owners or initial directors to discuss the following agenda:

• Appoint directors if none have been named in the articles or Certificate of Formation
• Appoint corporate officers
• Adopt the bylaws
• Authorization for the issuance of stock
• Setting the accounting year or the fiscal year for the corporation
• Adopt a stock certificate form
• Designating a bank or opening a business bank account
• Selection of the corporate seal

8. Open a bank account

For first time entrepreneurs and those who incorporate in Texas, having a business account can make a lot of difference. In fact, opening a business bank account will ensure your company is always on track. You can open a bank account after you register a Texas Corporation online and the benefits of this type of account are:

• It will help segregate cash flows in your personal and business account
• It will make accounting easier
• It aids in accurate and clean bookkeeping thus ensuring proper tax returns are filed
• It protects you from any legal liability
• It provides proof to the IRS that your company is not a ‘hobby business’
• It helps you to receive credit card payments

9. Comply with other tax and regulatory requirements

There are many benefits of incorporating in Texas but it is important to ensure your business complies with all tax and regulatory requirements of the state. In order to be compliant, you need to first identify the tax and other regulatory obligations your corporation has and complete registrations wherever necessary. Some of the areas to consider after you form a corporation in Texas are:

• If your Texas Corporation has employees then you will be subject to Texas employment tax. You can register for the same using the Texas Employer Portal.
• Whenever you hire an employee, you will need to inform the IRS as well as the State of Texas.
• If you choose to provide workers’ compensation coverage then you will need to register with the Texas Department of Insurance, Division of Workers’ Compensation.
• It is mandatory to file franchise taxes if you incorporate in Texas. The tax rate is 1% of income and is applicable for businesses having gross revenues more than $300,000
• You may have to file sales taxes in the state where the state-level rate is 6.25% and can be as much as 8.25% in certain areas
• You will be required to apply for business licenses, regulated licenses, and permits depending on the type of business activity.

Know more about forming a Texas Corporation

If you are planning to register a corporation in Texas, you may be confronted with several questions pertaining to various aspects of new business formation, maintenance, cost, and annual reports among others. This section has been created specifically to answer some of the common queries that entrepreneurs and business owners may have in the early stages of forming a corporation.

What is an S-Corporation?

An S corporation is a type of entity that has selected the IRS Code Subchapter S taxation. This type of entity is formed specifically for taxation purposes. A Texas S corporation is simply another corporation that enjoys pass-through taxation on their business profits. This is one of the major benefits of incorporating in Texas as an S Corp. This type of entity passes income along with deductions, credits, and losses to the shareholders and thus is not required to file any federal corporate tax. In order to choose S Corporation status, you will first have to register a corporation in Texas in accordance with the appropriate Texas Business Organizations Code. You will also be required to file ‘Form 2553 and Form 1120-S’ with the IRS.

What is a close corporation? What are some benefits of close corporation?

A close corporation is a traditional corporation with a specific type of management structure that is mostly utilized by small businesses where select individuals hold the shares of the corporation. The shareholders in this type of Texas Corporation are normally closely associated with the business. If you want to incorporate in Texas as a close corporation then it will be created under special provisions and will be known as a “statutory close corporation”. The formation of a close corporation is governed by TX Bus Orgs § 21.703 – § 21.706 (2019).

• The shareholders of a close corporation will not be personally liable for the debt of the business
• Since there are fewer shareholders, the corporate structure is more relaxed and provides each shareholder more control over their shares
• There are fewer rules and formalities including no requirement for annual meeting
• There is higher freedom of management, which means the decision-making processes will not be impacted by any public shareholders as there are no public shareholders
• There is higher freedom of financial structuring

How do I form a “C” corporation, an “S” corporation, or a “501(c)(3)” corporation in Texas? – H3

A C Corporation is known as the traditional corporation while an S Corporation is a special tax election status of a traditional corporation. A 501(c)(3) corporation in Texas is also known as a non-profit corporation. The formation process of all three type of corporation is as follows:

• C Corporation: You can form a corporation in Texas by filing the Certificate of Formation – For-Profit Corporation (Form-201) with the office of the Secretary of State.
• S Corporation: You have to first incorporate in Texas and then file an election with the Internal Revenue Service using Form 2553 for S corporation status.
• 501(c)(3) corporation: This type of entity is a non-profit corporation that can be formed by filing a Certificate of Formation – Nonprofit Corporation (Form-202) with the office of the Texas Secretary of State.

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

If you are planning to form a corporation in Texas then there are certain costs attached to it. Some costs are initial and one-time while others are recurring or annual costs. The initial cost of incorporation includes:

• There is a fee of $300 for filing a certificate of formation. The fee is the same to register Texas Corporation online
• A convenience fee of 2.7 percent if the fee for filing certificate of formation is paid using credit card
• If you are registering a foreign corporation then the fee for filing the Application for Registration of a
• Foreign For-Profit Corporation will be $750
• There will be an initial fee of $40 for reservation of business name
• You will need to apply for and obtain a business license or permit depending on the business activity and physical location (city/county) of the entity. This is a variable fee and dependent on the type of license being issued.

For example: The fee for food establishment permit (restaurants/mobile food unit) can vary from $250 to $750 depending on the gross annual volume of sales.

What is the management structure of a Corporation?

There are different types of management structures of a Corporation that a new owner or entrepreneur can choose from. You can incorporate in Texas with the most common type of management structure, which consists of a board of directors, owners, administrators, staff members, or shareholders. There are 4 different corporate structures prevailing are:

• Functional Structure
• Flat or Horizontal Structure
• Hierarchical structure
• Divisional Structure
• Matrix Structure
• Team-based structure
• Network organizational structure

Can one person be the sole shareholder, director, and officer of a corporation?

The Texas Business Organizations Code (BOC) has specified that professional and for-profit corporations in the state should have at least one president, one director, and one secretary to become operational. In such a scenario, a single person or individual can be the sole shareholder, director, president, secretary, and officer of the said corporation.

How do I look up a corporation in Texas?

In order to incorporate in Texas, you will need to ensure your business name is unique. This search can help you to look up an existing corporation in Texas. The search can be performed using the database of the Texas Secretary of State through the website of the Texas Comptroller of Public Accounts.

Who has to file a Texas Public Information Report?

Different states have different requirements when it comes to filing an annual report, which is also known as the Public Information Report in the state of Texas. Business entities in Texas like Corporations, Limited Partnerships, LLCs, financial institutions, and Professional Associations have to file this report. Once you register a Texas Corporation online, you will be required to Public Information Report (PIR). The report has to be filed with the Texas Comptroller of Public Accounts annually by May 15 in the year following the date of incorporation in Texas.

How do I dissolve a corporation in Texas?

After you register a Texas Corporation online and become operational; you may want to dissolve the business or wind up operations due to several reasons. The dissolution also known as termination of a corporation is governed by TX Bus Orgs § 21.501 (2019). The process of dissolving a Texas corporation constitutes both internal procedures and external procedures as required by the state. The steps for dissolving a Texas corporation are:

• Board of directors has to first adopt a resolution for dissolution and submit for the approval of shareholders.
• Alternatively, unanimous shareholder consent will be considered as an approval for termination. Shareholders will have to sign a written consent document that indicates their approval of the said dissolution.
• The second step is the “Wind Up” procedures, which the corporation has to complete in order to dissolve. Some of the procedures are ceasing to carry on business operations, notifying each of the known claimants, completing all outstanding lawsuits, and distribution of any assets remaining to the shareholders.
• The final step is to file a Certificate of Termination and a Certificate of Account Status for Dissolution/Termination with the Texas Secretary of State. The Certificate of Account Status for Dissolution/Termination is issued by the Texas Comptroller of Public Accounts if payment for all taxes is complete.

Are you ready to start a Texas Corporation?

You can form a C Corporation, S Corporation, Professional Corporation, Close Corporation, or special purpose corporations in Texas. The process to form a corporation in Texas may require extensive documentation and this is where IncParadise can provide valuable assistance. We are one of the most reputable Texas registered agents with experience in helping thousands of companies to incorporate in Texas.