S Corp in Texas: Everything You Need to Know
Forming an S Corp in Texas is a great solution for structuring your business, particularly if you wish to avoid double taxation.4 min read updated on February 01, 2023
Forming an S Corp in Texas is a great solution for structuring your business, particularly if you wish to avoid double taxation.
S Corporation in Texas Basics
A Sub S Corporation is a type of company that has chosen IRS Code Subchapter S taxation. If you want to form an S corporation in Texas, the first step is establishing your corporation in this state based on the rules of the Texas Business Organizations Code. You will also need to file the appropriate form with the IRS.
S corporations have two characteristics:
- The personal property of company owners is protected in lawsuits against the corporations.
- Income and losses are passed through to shareholders for individual taxation.
Simple taxation and liability protections make S corporations the best business structure for small businesses.
There are certain shareholder limitations for S corporations in Texas:
- Fewer than 100 shareholders are allowed.
- Shareholders either be United State citizens or resident aliens.
In Texas, estates and trust can be S corporation shareholders in certain circumstances. After your Texas corporation has been approved, you can elect S corporation status by filing the correct paperwork with the IRS.
Forming Your Texas Corporation: First Steps
The first step in forming your S corporation in Texas is selecting a distinct name for your corporation. If you're having trouble determining if your corporation's name is unique enough, you can get assistance from the Office of the Secretary of State. You should be sure that the name you have selected for your corporation does not violate any trademarks. As in most states, your corporate name must include designators such as Corporation, Corp., Incorporated, or Inc.
If you wish to pre-screen your corporation's name and file a reservation request, you can do so by calling the Secretary of State at (512) 463-5555. However, the Secretary will not determine the suitability of your desired name until you have filed your formation documents. If you're still in the process of filing your incorporation paperwork, you will not be able to reserve your corporation's name.
Next, you need to acquire Texas Form 201, which is also called the Certificate of Formation For-Profit Corporation. While you can easily complete this form online, it's also possible to download the form, print it out, and then complete it manually. You can also request that the form be mailed to you or pick a copy up in person at the office of the secretary of state.
Filling Out Form 201
Once you have Form 201, enter your company's name, including your designator in Article 1.
In Article 2, you should list the name and contact information of your registered agent. This person will accept legal documents on your company's behalf. In Texas, a corporation is not allowed to be its own agent.
Article 3 should list the mailing addresses and names of your corporation's directors. If your corporation plans to issue shares, you will need to list how many shares will be issued and their value in Article 4.
Article 5 should include the purpose of your corporation and also needs to identify your corporation's organizer.
Now you need to select the effective date of your corporation. If your effective date needs to be delayed, this should be indicated in your form.
After providing all the necessary information on Form 201, you should submit the form to the Secretary of State online at the SOS Direct website.
S Corporation Requirements
Once your Texas corporation has been formed, there are certain requirements you must meet to achieve S corporation status.
First, you need to develop bylaws for your company that comport with Texas rules for S corporations. In these bylaws, you should describe where and when your company meetings will be held, your rules for appointing directors, how long your directors will serve, and the compensation and responsibilities of officers. You should keep a copy of your bylaws at your company's main location.
Your company needs an employer identification number (EIN). This number can be acquired from the IRS website. Before the IRS will issue your number, you need to provide several pieces of information.
- The name and address of your business.
- A description of your business activities.
- The number of employee's you have in your corporation.
- Contact information and the Social Security number of an authorized representative.
After you've obtained your EIN, you will elect S corporation status by filing Form 2553 with the IRS. On this form, list, your EIN number, the state where you have incorporated, your incorporation date, and the location and legal name of your corporation.
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