1. How Texas S Corporations Are Formed
2. Texas S Corporations and Taxes

Updated November 3, 2020:

Texas S corporations are formed by reserving a name, appointing a registered agent and directors, filing the certificate of formation with the Texas secretary of state, holding the first board of directors meeting, and issuing stock. Texas S corporations register with the IRS by applying for an EIN, followed by filing Form 2553. Like other S corporations, Texas S corporations have pass-through status and do not pay federal corporate tax.

How Texas S Corporations Are Formed

The following steps are required to form a Texas S corporation:

  • Registering a Name. The journey towards forming an S corporation in Texas starts with reserving a name with the Texas secretary of state. The name must meet the guidelines of the secretary of state and must be different from the names of other Texas entities. You can see names that have already been registered on the entity search database of the Texas secretary of state. You can also find out if a name is available by writing an email to the secretary of state's office.
  • Appointing a Registered Agent for Service Process. All S corporations must appoint a registered agent for service process in Texas. The agent is responsible for receiving legal papers on behalf of the corporation and must be available every workday during working hours for this purpose. Texas corporations can either appoint an entity or an individual as a registered agent.
  • Appointing a Board of Directors. All S Corporations in Texas must have a board of directors. The names and addresses of the board of directors are needed on the articles of formation. Therefore, the appointment needs to be made before filing the certificate of formation.
  • Filing the Certificate of Formation. The corporation should then file the certificate of formation (Form 201) with the Texas secretary of state. The Certificate of Formation is a document that gives basic details about the corporation to the secretary of state. The document should list the following details about the S corporation: Its name and address, the names and addresses of the S corp directors, and the name and address of the corporation's registered agent. Other details needed on the form are the type of stock the corporation will issue, the maximum number of shares the corporation will issue, and the minimum price of each share. Filing Form 201 costs $300.
  • Holding the First Board of Directors Meeting. The board of directors must sit to adopt corporate bylaws, initiate the issuance of stock, and appoint officers.
  • Applying for the Employer Identification Number (EIN). The new S corporation must apply for an Employer Identification number from the IRS. This number will enable the S corporation to pay taxes to the IRS.
  • Getting Permits. Most S corporations will need local and federal permits or licenses to operate. The exact permits depend on the location of the S corporation and the line of work of the corporation.
  • Applying for S Corporation Treatment. The corporation can apply for S corporation treatment with the IRS. There are a number of qualifications for the S corp treatment. The corporation must have no more than 100 shareholders, and all its shareholders must be individuals and not businesses or business trusts. All the shareholders should be U.S. citizens or U.S. residents. The decision to file as an S corporation must be supported by all the shareholders. To apply for S corporation treatment, the S corp needs to file Form 2553. The IRS will give a reply within 60 days of the filing. The application should be made within the first two months and 15 days of the corporation's tax year for S corp status to take effect in the same year.

Texas S Corporations and Taxes

Texas S corporations do not pay corporate taxes. They must, however, file tax corporate returns using Form 1120S to the IRS. S corporation shareholders must also pay personal income taxes on their share of the corporation's earnings. In addition to state income tax, S corporation in Texas also pay franchise tax and may qualify for:

  • Sales tax
  • Unemployment insurance
  • Workers compensation insurance.

Franchise tax for Texas S corporations is charged at a rate of about to 0.375 percent of a corporation's revenues. S corporations also need to file annual reports with the Texas Comptroller. Both the franchise tax and annual report are due on May 15.

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