Key Takeaways

  • A Texas corp is legally established when you file a Certificate of Formation with the Texas Secretary of State.
  • Corporations offer limited liability, perpetual existence, centralized management, and easy transfer of ownership.
  • Texas requires appointing a registered agent, adopting bylaws, holding an initial board meeting, and maintaining corporate records.
  • Filing fees, annual franchise tax reports, and compliance with state and federal tax requirements are essential for good standing.
  • Texas nonprofits and professional corporations follow similar filing procedures but include additional purpose or licensing requirements.

In Texas, a corporation's status is established when a Certificate of Formation is filed with the Texas Secretary of State's office, who provides a form that will meet minimum state law provisions.

Texas Corporation

It's important to meet with an accountant and attorney when deciding on a business structure. There are many important issues that need to be discussed, such as:

  • Taxes
  • Liability
  • Continuity Management
  • Ability to transfer ownership interests
  • Formalities related to operations

In Texas, a corporation is established when a Certificate of Formation is filed with the Texas Secretary of State. This document can be filed online on the SOSDirect website.

A corporation offers shareholders:

  • Limited liability
  • Perpetual duration
  • Centralization of management
  • A way to transfer ownership interests with ease

Shareholders are the owners of a corporation. The directors of a corporation are responsible for managing the business and operations. According to state law, shareholders may agree to a shareholder's agreement which would eliminate the director's roles and provide shareholders with total control of the organization.

Filing as an S corporation is a federal tax strategy and not a compliance issue at the state level. Electing to file as a for-profit S corporation entails contacting and requesting this election with the IRS.

Texas Corporation Formation Requirements

To officially create a Texas corp, business owners must complete several legal steps beyond filing a Certificate of Formation. These steps ensure the corporation is recognized by the state and operates in compliance with Texas Business Organizations Code (BOC).

1. Choose a Corporate NameYour corporation’s name must be distinguishable from existing entities registered with the Texas Secretary of State and include a corporate designator such as “Corporation,” “Incorporated,” “Company,” or an abbreviation like “Inc.” or “Corp.” You can check name availability on the SOSDirect portal and optionally reserve the name for 120 days by filing Form 501 with a $40 fee.

2. Appoint a Registered AgentTexas requires every corporation to maintain a registered agent with a physical address in the state to receive legal notices and official correspondence. The agent can be an individual Texas resident or a registered business authorized to operate in Texas.

3. File the Certificate of FormationFile Form 201 (Certificate of Formation) with the Secretary of State either online via SOSDirect or by mail. The filing fee is $300. The certificate must include:

  • The corporation’s name and type
  • Registered agent’s name and address
  • Authorized shares and par value
  • Names and addresses of initial directors
  • Organizer’s name and signature

Once filed and approved, your Texas corp becomes a legal entity.

4. Create Corporate BylawsWhile not filed with the state, bylaws serve as the corporation’s internal rulebook. They outline procedures for board meetings, shareholder voting, officer roles, and record-keeping.

5. Hold an Organizational MeetingAt the first board meeting, directors should:

  • Adopt the bylaws
  • Appoint officers
  • Issue stock certificates
  • Establish a fiscal year and bank account

6. Obtain an EIN and Register for TaxesEvery corporation needs an Employer Identification Number (EIN) from the IRS. Additionally, corporations conducting business in Texas may need to register for sales tax, unemployment tax, and file annual franchise tax reports with the Texas Comptroller.

Benefits of a Corporation

Deciding to incorporate provides shareholders with many benefits, including limited liability. Limited liability provides shareholders with the security that their personal assets cannot be pursued by creditors. Benefits of filing as a corporation include:

  • Protecting shareholder's from the actions of employees and business partners
  • Possible tax saving
  • The ability to easily transfer shares of the business

Ongoing Compliance and Maintenance for a Texas Corp

After incorporation, Texas corporations must meet ongoing legal and tax obligations to remain in good standing. Neglecting these requirements can result in fines, dissolution, or loss of limited liability protections.

Annual Franchise Tax and Public Information ReportMost Texas corporations must file a franchise tax report and a Public Information Report (PIR) with the Comptroller by May 15 each year. The franchise tax is based on the corporation’s revenue, and even if no tax is due, a “No Tax Due” report must still be filed.

Business Licenses and PermitsDepending on the industry, corporations may require state or local permits, such as sales tax permits, professional licenses, or health and safety authorizations.

Corporate Records and MeetingsTexas law requires corporations to maintain accurate corporate records, including meeting minutes, bylaws, and shareholder agreements. Annual meetings of shareholders and directors should be documented to demonstrate adherence to corporate formalities.

Registered Agent and Office UpdatesIf a registered agent or office address changes, the corporation must promptly update this information with the Secretary of State. Failure to maintain a registered agent can result in administrative dissolution.

How to Form a Texas Nonprofit Corporation

Many nonprofits file as a 501(c) (3) tax-exempt business. They are mainly created for religious, scientific, literary, charitable, or educational purposes. In order to file as a 501(c) (3), businesses should first create a Texas nonprofit corporation under the Texas Business Organizations Code and apply with the IRS and state of Texas for tax-exempt status. Once this is completed, the business can move on to the following steps:

1. Choose the initial directors for your nonprofit

Unless the business is managed by shareholders (rather than directors), there must be at least three directors on the board. The incorporator of an organization can be a natural person 18 years or older, another legal entity, or a corporation.

2. Choose a name for your Texas nonprofit corporation

The name chosen by the nonprofit corporation may not be the same as or similar to any current name previously filed with the Secretary of State's office. Business name availability may be verified online on the SOSDirect website.

3. Prepare bylaws for your Texas nonprofit corporation

Bylaws consist of the procedures and rules the business follows when electing directors and officers, holding meetings, and handling other business formalities mandatory by Texas law. The bylaws are not required to be filed with the state but are instead intended to be used internally as an operating manual.

4. Prepare and file your nonprofit Articles of Organization

A nonprofit organization is created by filing the Certificate of Formation with the Texas Secretary of State's office. See sections 3.005 and 3.009 in the Business Organizations Code for more information regarding the Certificate of Formation. The Texas Secretary of State's website has a Certificate of Formation form which can be completed online in order to create a Texas nonprofit corporation.

In order to be eligible for tax-exempt status with the IRS, additional distinct language must be added in the certificate of formation. This includes:

  • A statement of purpose (meeting IRS requirements)
  • A statement proclaiming that the organization in question will not engage in any political or legislative activity that is deemed prohibitive
  • A dissolution of assets statement that designates all assets are assigned to another 501(c)(3) upon dissolution

5. Hold a meeting with your Board of Directors

The initial board meeting is called the organizational meeting of the board. The board is responsible for:

  • Approving bylaws
  • Appointing officers
  • Designating accounting periods and the tax year
  • Authorizing the initial transactions, e.g., opening a bank account

6. Set up a corporate records binder

A corporate records binder should be created for all nonprofits. The binder contains essential documents such as the certificate of formation, the bylaws, and the Board of Directors meeting minutes.

Professional and Foreign Corporations in Texas

In addition to traditional for-profit corporations and nonprofits, Texas law provides for specialized corporate structures.

Professional Corporations (PCs)Licensed professionals such as doctors, lawyers, architects, and accountants may form a professional corporation to provide regulated services. PCs follow similar formation steps but must ensure all shareholders and directors hold the relevant professional licenses.

Foreign CorporationsBusinesses incorporated in another state must register as a “foreign corporation” before conducting business in Texas. This involves filing an Application for Registration with the Secretary of State, providing a certificate of good standing from the home state, and appointing a registered agent in Texas.

Frequently Asked Questions

  1. How much does it cost to form a Texas corp?
    The filing fee for a Certificate of Formation is $300. Additional costs may include name reservation fees, registered agent services, and annual franchise tax filings.
  2. Do Texas corporations pay state income tax?
    No, Texas does not have a corporate income tax. However, most corporations must pay a franchise tax based on their revenue.
  3. Can one person form a Texas corporation?
    Yes. A single individual can serve as the incorporator, director, officer, and sole shareholder.
  4. How long does it take to form a Texas corp?
    Online filings are typically processed within 3–5 business days, while mailed submissions can take up to two weeks.
  5. What happens if a Texas corp fails to file annual reports?
    Failure to file annual franchise tax and information reports may result in penalties, loss of good standing, and administrative dissolution by the state.

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