How to Incorporate in Texas (May 2024 Update)

Incorporating a business in Texas can provide your company with valuable benefits like personal liability protection and increased credibility. This guide will walk you through the entire process to help you successfully form your Texas corporation.

Incorporating in Texas involves filing paperwork with the Secretary of State to establish a legal business entity that is separate from its owners. Some key advantages of the corporate structure include:

• Personal liability protection - As a corporation, owners typically aren't personally responsible for company debts and legal judgments. Creditors can't pursue the personal assets of shareholders.
• Tax advantages – Corporations allow for deductible expenses and can minimize overall tax obligations.
• Fundraising opportunities - The corporate structure can make it easier to attract outside investment through stock sales.
• Credibility - Forming a corporation signifies you are running an established business, which can increase trust with customers.

While incorporating does involve some complex legal and tax considerations, the Corporation Formation section below outlines the basic steps for small business owners to get started.

Steps to File for Incorporation in Texas

1. Choose a Business Name

The first step is deciding on your corporation’s official name. You'll want to pick something unique and memorable. Check the Texas Secretary of State’s database to ensure it’s distinguishable from existing names and available for you to register.

You can also pay $40 to reserve an available corporation name for 120 days. This gives you time to prepare additional documents without worrying about someone else claiming your name in the meantime.

There are a few rules around what you can name your Texas corporation:

• It must contain "Corporation," "Company," "Incorporated," "Limited," or abbreviations like "Corp." or "Inc."
• It can’t be identical or deceptively similar to another entity name already on record with the state.

2. Appoint a Registered Agent

Texas requires all corporations to designate a registered agent – an individual or business entity that is authorized to receive service of process if your corporation gets sued. The registered agent must have an address within Texas where they can readily accept legal documents.

Many business owners serve as their own registered agents when first starting out before switching this role over to a third-party service as their company grows. Reasons for ultimately using a registered agent service include privacy concerns and not wanting personal addresses published online.

3. File Formation Documents

To legally form your Texas corporation, you’ll need to file a Certificate of Formation with the Secretary of State. This document contains basic information about your corporation like the business name, registered agent details, business purpose, and stock details.

You'll also need to include the number of total shares your corporation is authorized to issue along with director names and a business address.

The filing fee is $300 and this document is essential for creating your corporate entity. Submit copies for your records along with the file-stamped Certificate of Formation you’ll receive back from the state.

4. Create Corporate Bylaws

While not formally filed, every newly formed corporation needs bylaws to establish operating rules and procedures related to ownership, meetings, voting procedures, electing directors, duties of officers, and more.

Even if you’ll be a closely held corporation with few shareholders, bylaws are helpful for avoiding disputes on how the internal affairs are governed. Most banks will request a copy of your bylaws too for opening business accounts.

5. Appoint Directors

Directors are responsible for overseeing the corporation's high-level affairs and decision making on topics like officer appointments, authorizing share issuances, and declaring shareholder dividends.

Unless specified otherwise in your Certificate of Formation, the incorporator (person who files the formation documents) will designate the initial Board of Directors. This is handled through an Incorporator's Statement document kept internally along with your corporate bylaws.

6. Hold an Organizational Meeting

The first official Board of Directors meeting is critical for handling formalities to start corporation operations. This includes appointing corporate officers like the President, Secretary, and Treasurer who handle day-to-day management.

Other key items are issuing initial stock shares, authorizing stock certificates, selecting a bank, and adopting a corporate seal and fiscal year. Detailed meeting minutes should be prepared and stored securely with other company documents.

7. Obtain Business Licenses

Most new corporations need some combination of local, state, and federal business licenses or permits before legally operating. Requirements vary widely based on your location and business activities. Common examples include sales tax permits, food service permits, liquor licenses, and professional licenses.

The Texas Business Permit Office and Texas Department of Licensing and Regulation websites offer helpful guidance on where to start when determining your licensing needs.

8. Get an Employer Identification Number

An EIN is a 9-digit number the IRS uses to identify your business for tax purposes. While not strictly required, most corporations need an EIN to open business bank accounts, apply for business licenses, file taxes, and hire employees down the road.

This unique identifier is easy to obtain instantly from the IRS website. Just ensure you wait until after your Certificate of Formation is officially approved by the state so you have your formal corporation name.

Ongoing Corporation Requirements

Compliance is critical for both upholding your corporate protections under law and avoiding penalties from state regulators. Here are 4 key areas to remember after initial incorporation.

1. File Annual Reports

All Texas corporations must submit franchise tax reports annually with the Texas Comptroller no later than May 15. This involves filing out detailed forms on your revenue sources along with any estimated taxes owed. There are steep penalties for late filings so be sure to calendar your tax deadlines for each year.

2. Pay Taxes

In addition to franchise taxes, you must handle standard federal and state income taxes for corporations. Work closely with your CPA to manage estimated payments through the year and determine the optimal tax filing strategy for your situation. Most corporations pick either a calendar or fiscal year-end when filing annual income tax returns.

3. Hold Annual Shareholder Meetings

Texas corporations are mandated by state law to hold at least one shareholder meeting per year. This involves sending advance written notice to all shareholders with meeting minutes later prepared by the Secretary to document votes taken and actions authorized by Shareholders. Missing or inadequately documenting processes for annual shareholder meetings puts your corporation at legal risk. So be sure to follow formal procedures outlined in your bylaws when convening official shareholder meetings.

4. Maintain Corporate Records

Certain records must be kept at your registered corporate office per Texas incorporation laws. This includes details on current/former shareholders, assets, accounting statements, tax returns for the past four years, and meeting minutes. Keeping meticulous records internally goes hand-in-hand with executing official meetings, votes, policies and procedures properly over time to preserve your liability protection as a corporation.

Specialized Corporation Types

While most small businesses operate as standard domestic stock corporations, Texas provides for alternative incorporation options. Two examples include Professional Corporations and Nonprofit LLC Hybrids.

Professional Corporations

Certain licensed professionals like doctors, lawyers and CPAs must register through a Professional Corporation entity due to regulations governing their practice. The main difference from standard corporations is the requirement to file for a Certificate of Authority demonstrating your professional credentials. Ownership is also restricted solely to other licensed practitioners of your profession.

Nonprofit Limited Liability Companies

LLCs are traditionally profit-seeking entities, but the Texas Business Organizations Code interestingly permits forming an LLC with nonprofit purposes stated in your Articles of Organization. However, attaining federal 501(c)(3) recognition as an official charitable entity involves extensively different IRS rules. Consult with an attorney before attempting this complex hybrid approach.

Conclusion

Launching a new corporation does require close attention to legal formalities and compliance. But spending time upfront considering structural decisions around ownership, stock classes, and bylaws prevents issues later. Seek input from a business lawyer on best filing practices and ongoing requirements too if questions arise. Use this full guide to key Texas incorporation steps as your roadmap to getting started.