Texas Corporation Law: Everything You Need to Know
Texas corporation law states how a corporation must be established to receive the corresponding legal benefits.3 min read
Texas corporation law states how a corporation must be established to receive the corresponding legal benefits. A corporation is a business that is separate from its owners and shareholders, which means it has its own privileges and liabilities. When a corporation is founded, it becomes a separate entity from its stockholders.
For many companies, incorporating is a big step for future growth. It also protects the owner and stockholders from potential liabilities by legally separating business and personal interests. Before deciding if incorporating is the best decision for your business, consider the pros and cons of owning a corporation.
Business corporations are distinguished from other business entities by their five main characteristics:
- Legal personality
- Limited liability
- Transferable shares
- Centralized management with a board of directors
- Shared ownership by all capital contributors
How to Form a Corporation in Texas
In order to become a valid Texas corporation, the correct paperwork needs to be filed with the state. Before starting the incorporation process, you should check to make sure the business name you want to use is available.
According to Texas law, businesses must file a certificate of formation with the Secretary of State. The certificate includes details about the business and its operations. The certificate of formation must be signed by every organizer and include the following information:
- Business name
- Type of business
- The purpose of filing the paperwork, which can be any lawful purpose
- Length of time the corporation will last unless there is no end date
- Contact information for the initial registered agent
- Name and address of each organizer
The paperwork must be filed with the appropriate fees, which are posted online.
Steps to Incorporating a Business
First, choose a business name and check its availability. In order to be valid, a corporation must include "company," "corporation," "incorporated," "limited," or a corresponding abbreviation in its name. The name of your business can't be the same or very similar to an existing company on file in Texas. Contact the Texas Secretary of State to see if your desired business name is available. It can also be helpful to register your business name as a federal or state trademark, but this isn't required for the incorporation process.
The next step is to appoint someone to be a director. Texas law states that a corporation must have at least one director. Directors can be any age and don't have to be residents of Texas unless stated in the company's bylaws. The names and contact information for the director or directors should be included in the certificate of formation and bylaws.
Once the director is in place, file the certificate of formation with the Secretary of State and pay the $300 filing fee. The form and directions for filing can be found on the Secretary of State's website.
The next step is to write the bylaws for the corporation. Bylaws are unique to each company and establish the internal structure and processes for running the business. Common topics include where the office will be located, how many people will sit on the board of directions, how often shareholder meetings will take place, and how the board of directors will operate. Bylaws don't have to be filed with the Secretary of State, but they should be kept in the main offices for the corporation.
Next, hold an organizational meeting following the outline in Texas Business Organizations Code § 21.059.
The initial owners of the corporation should then be issued stock certificates. In most cases, the board of directors decides the amount of cash or property each share of stock is worth. The corporation will then need to get any licenses that are required in the local area.
From there, the corporation should prepare its tax documents by requesting an Employer Identification Number, or EIN, from the IRS website. If you have employees in Texas, you must file state employment taxes. Start by registering through the Texas Employer Portal online. The details of notifying the state and IRS when a new employee is hired, as well as withholding information, is detailed on the IRS website under the Hiring Employees category.
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