Forming a corporation in Texas requires navigating several important steps. In this guide, you’ll learn how to choose a unique business name, file necessary documents, and comply with tax requirements. Ready to incorporate your business in Texas? Let’s dive in.
Key Takeaways
To form a corporation in Texas, select a unique corporate name that includes terms like Company, Corporation, Incorporated, or Limited, and verify its availability with the Texas Secretary of State to avoid market confusion and legal issues.
Filing the Certificate of Formation with a $300 fee is a critical step that legally establishes your corporation, which must be followed by actions like drafting corporate bylaws, appointing initial directors, and issuing stock certificates to formalize your corporate governance structure.
Compliance with Texas state obligations, such as obtaining a Federal Employer Identification Number (EIN), opening a corporate bank account, filing annual franchise tax reports, and maintaining accurate corporate records, is essential to maintaining the legitimacy and operational integrity of your corporation.
Select a Corporate Name
The first step towards establishing a corporation in Texas involves selecting a corporate name. The name you select must be unique and distinguishable from other businesses registered in Texas. The Texas Secretary of State will reject any new filing if another business, including foreign corporations, is registered with the same name. This ensures that your business stands out and avoids market confusion.
Moreover, the name should not be deceptively similar to existing names or imply a false government affiliation. Such names could mislead the public and will be rejected by the Texas Secretary of State. Additionally, certain professional words like “bank,” “insurance,” and “trust” require specific approvals or additional words to clarify their use.
Ensure your desired corporate name includes one of the following terms: Company, Corporation, Incorporated, or Limited, as required by Texas law. Before you settle on a name, it’s necessary to verify its availability with the Texas Secretary of State. This step will save you time and potential legal hassles down the road.
Reserve Your Business Name
After settling on a unique business name, proceed to reserve it. In Texas, you can hold your desired business name for 120 days by filing an Application for Reservation or Renewal. This gives you ample time to complete the incorporation process without the risk of losing your chosen name.
The filing fee for reserving a business name in Texas is $40. You can file this application online via Texas SOSDirect, making the process convenient and efficient. If you need to withdraw your reservation, you can submit a Notice of Withdrawal of Reservation of an Entity Name form to the Secretary of State at no additional cost.
In case you want to transfer the reserved name to another entity, a Notice of Transfer of Entity Name form must be submitted along with a $15 filing fee. This flexibility ensures that your business name remains secure throughout the incorporation process.
Steps to Form a Corporation in Texas
| Step | Description | Key Documents |
|---|---|---|
| Choose a Name | Select a unique name that complies with Texas naming requirements. Must include “Corporation,” “Company,” “Incorporated,” or an abbreviation. | Name search results |
| Appoint a Registered Agent | Choose a registered agent to receive legal documents. Must be a Texas resident or authorized business entity with a physical Texas address. | Registered Agent Consent Form |
| File Certificate of Formation | Prepare and file the Certificate of Formation with the Texas Secretary of State. Includes corporation name, registered agent info, share details, and initial directors. | Certificate of Formation |
| Pay Filing Fee | Submit the required filing fee along with your Certificate of Formation. As of 2024, the fee is $300. | Payment receipt |
| Create Corporate Bylaws | Draft bylaws outlining internal rules and procedures for operating your corporation. Essential for corporate governance but not filed with the state. | Corporate Bylaws |
| Hold Initial Board Meeting | Conduct the first meeting to adopt bylaws, appoint officers, issue stock, and handle other initial corporate matters. | Meeting minutes |
| Issue Stock Certificates | Create and distribute stock certificates to initial shareholders as decided in the board meeting. | Stock certificates |
| Obtain Licenses and Permits | Research and acquire any required business licenses or permits for your specific industry and location in Texas. | Business licenses, Permits |
| Apply for EIN | Obtain an Employer Identification Number (EIN) from the IRS for tax purposes and opening a business bank account. | EIN confirmation letter |
Designate a Registered Agent
As part of the legal procedure to form a corporation in Texas, you need to designate a registered agent. A registered agent is responsible for receiving and forwarding legal documents and state notices on behalf of the corporation. This role is crucial for ensuring that your corporation remains compliant with state laws and regulations.
You can choose either a Texas entity authorized to transact business in Texas or an individual resident of the state as your registered agent. The registered office address, which is the physical address, must be a physical street address that is open during normal business hours. While businesses can appoint an officer or employee as their registered agent, many opt for a professional registered agent service for flexibility and confidentiality.
Professional registered agents provide a legal address available during standard business hours and ensure timely delivery of important documents. Failure to maintain a registered agent can lead to penalties or even revocation of your corporation’s authority to do business in Texas.
File the Certificate of Formation
The Certificate of Formation is the official document that legitimizes your corporation in Texas, marking a significant step in your business formation. You will need to file the Certificate of Formation For-Profit Corporation (Form 201) with the Texas Secretary of State. This form can be filed online via SOSDirect or by mail, providing flexibility in the filing process.
The filing fee for the Certificate of Formation is $300. This fee must be paid at the time of filing. Once filed, the Certificate of Formation becomes effective immediately unless you specify a delayed effective date, which can be up to 90 days in the future. This allows you to plan your corporation’s launch according to your business timeline.
Submitting the Certificate of Formation marks a pivotal point in the incorporation journey. It legally establishes your corporation and provides the foundation for all subsequent steps, such as drafting bylaws, appointing directors, and issuing stock certificates.
Draft Corporate Bylaws
To set up the internal governance of your corporation, you need to draft corporate bylaws. Bylaws act as the corporation’s internal operating manual, specifying its management structure and operational rules. They establish the corporation as a separate legal entity, helping to prevent personal liability for corporate debts and showing legitimacy to banks, creditors, and the IRS.
Corporate bylaws typically include provisions for:
The election and roles of the board of directors
Meeting procedures
Voting requirements
The rights and responsibilities of members (if applicable)
Indemnification provisions to protect directors and officers from liability arising from their association with the corporation
The initial bylaws are adopted by the board of directors after incorporation and do not need to be filed with any government entity. However, a corporation may not legally exist until its board of directors has adopted bylaws or addressed how the company will be run. The board of directors may amend or repeal the bylaws unless this power is reserved to the members by the certificate of formation.
Conflict of interest provisions in the bylaws require directors to disclose actual and potential conflicts and to exclude themselves from related discussions. Clear bylaws ensure smooth operation and management of the corporation, providing a framework for decision-making and corporate governance.
Appoint Initial Directors
The process of forming your Texas corporation necessitates the appointment of initial directors. The incorporator must:
Fill out an ‘Incorporator’s Statement’ to show the names and addresses of the initial directors
Sign the statement
Place a copy in the corporate records book
This formalizes the appointment and ensures that the corporation has the necessary leadership to move forward.
Following the filing of the certificate of formation, the initial board of directors must hold an organizational meeting to adopt bylaws, elect officers, and attend to other corporate business. During this meeting, the board may also approve the election of S corporation status if applicable. A notice of the organizational meeting must be sent to each director at least three days before the meeting date.
The organizational meeting can be held either within or outside Texas, providing flexibility for the directors. This meeting sets the foundation for the corporation’s operations and governance, making it a crucial step in the incorporation process.
Issue Stock Certificates
To establish ownership in your corporation, you must issue stock certificates. Bylaws should include provisions for stock issuance, specifying who receives stock, types of stock, and transfer procedures. Shares can be issued with or without a par value, representing the minimum issuance amount per share.
A stock certificate must explicitly state that it represents shares in a Texas corporation and include the name of the person to whom the shares were issued. It should also specify the number and class of shares, along with any series designation. The certificate must be signed by an officer of the corporation and may contain the corporate seal or a facsimile of the seal.
Maintaining a stock transfer ledger detailing the issuance of shares and each transfer thereafter is required for corporate records. This ledger ensures accurate tracking of share ownership and is crucial for maintaining clear corporate records.
Obtain a Federal Employer Identification Number (EIN)
For tax purposes and to open a business bank account, you must obtain a Federal Employer Identification Number (EIN). The EIN application can be completed online through the Internal Revenue Service (IRS) if your principal business is located in the United States or U.S. Territories.
The person applying for an EIN online must have a valid Taxpayer Identification Number and complete the application in one session, as it cannot be saved and returned to later. Upon completion, you will receive your EIN immediately, allowing you to move forward with your business operations without delay.
Open a Corporate Bank Account
To manage your business’s finances effectively, you need to open a corporate bank account. When selecting a financial institution, consider factors such as fees, services offered, and ease of access. Look for banks that provide services tailored to businesses, such as low fees and business credit cards.
A corporate bank account helps:
Separate your business finances from personal finances
Ensure clear financial records
Simplify tax reporting
Maintain the integrity of your corporation
Protect personal assets from business liabilities
Comply With Texas Franchise Tax Requirements
Corporations formed in or doing business in Texas are subject to a franchise tax, which is imposed by the state. Each taxable entity, including corporations, LLCs, and professional associations, must file Form 05-102 annually in accordance with the Texas Business Organizations Code. The report must be submitted by May 15 annually. It is a recurring deadline.
The Texas Franchise Public Information Report (PIR) must be filed every year after forming a corporation in Texas. This report lists the names and addresses of officers, directors, and managers and must be completed and signed by an authorized person. The report can be filed online using the CPA’s eSystems/Webfile or by mailing the completed form.
Failure to file the PIR can result in forfeiture of the entity’s right to transact business in Texas. Additionally, not maintaining records or paying taxes can lead to the forfeiture of the corporation’s charter or certificate by the Texas Comptroller.
Maintain Corporate Records
To safeguard corporate privileges and protect officers or directors from personal liability, it’s important to maintain accurate corporate records. Texas corporations must keep books and records of accounts at the principal office. This includes minutes of director and shareholder meetings and a list of both current and past shareholders.
Each shareholder’s name and contact information should be listed in the corporation’s stock transfer ledger when issuing stock. Accurate record-keeping is crucial for legal compliance and smooth business operations, helping to maintain the corporation’s integrity and legitimacy.
File Annual Reports
Certain types of entities are legally obliged to submit annual or periodic reports to the Texas Secretary of State. For example, a Texas partnership registered as a Limited Liability Partnership (LLP) must file an annual report by June 1 each year. Nonprofit corporations file periodic reports upon receiving notice, but not more than once every four years.
Certain types of organizations like for-profit and professional corporations, professional associations, limited liability company (LLC), and certain limited partnerships are required to file annual reports with the Comptroller of Public Accounts as part of their state franchise tax obligations. Understanding these requirements and deadlines ensures that your professional corporation remains in good standing with the state.
Summary
Forming a corporation in Texas involves several critical steps, from selecting a corporate name to maintaining accurate records. Each step is essential for ensuring legal compliance and the smooth operation of your business. By following this guide, you can navigate the incorporation process with confidence and set your corporation up for success.
Remember, the journey of forming a corporation doesn’t end with incorporation. Ongoing compliance and diligent record-keeping are vital for maintaining your corporation’s good standing and reaping the benefits of limited liability and legal protections.
Frequently Asked Questions
How long can I reserve a business name in Texas?
You can reserve a business name in Texas for 120 days by filing an Application for Reservation or Renewal with the Texas Secretary of State.
What is the role of a registered agent in Texas?
The role of a registered agent in Texas is to receive and forward legal documents and state notices on behalf of the corporation, which is crucial for maintaining compliance with state laws.
What documents are needed to file the Certificate of Formation?
To file the Certificate of Formation for a For-Profit Corporation in Texas, you will need to submit Form 201 along with a $300 filing fee.
How often must Texas corporations file the Public Information Report (PIR)?
Texas corporations must file the Public Information Report (PIR) annually by May 15. This ensures compliance with state regulations and deadlines.
What records must Texas corporations maintain?
Texas corporations are required to maintain books and records of accounts, minutes of director and shareholder meetings, and a list of current and past shareholders. This is essential for legal and regulatory compliance.
