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.
Once you have identified or chosen a business name; the next step is to check for its availability with the office of the Texas Secretary of State, You can conduct a name availability search for the same and if the name is available then it can be reserved for a period of 120 days.
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
IncParadise can be your Texas Corporation registered agent as we are one of the most reputable registered agents in the state with a long-standing experience in incorporation. We also specialize in offering a wide range of business services.
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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
The minutes of the meeting have to be recorded by someone present at the organizational meeting and the minutes has to be kept at the principal place of business of the said corporation
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.
Once you register a corporation in Texas, you will have to make it operational and this requires you to obtain a business license in Texas. Each business has a separate requirement and type of license or permit depending on their business activity. The process of searching for the right licenses and permits can be grueling and hence we have created a business license check service that will help you to quickly identify the licenses, understand the filing instructions, check the supporting documents required, and simply apply for and obtain required licenses.