Here is an outline of the steps you need to follow in order to form a corporation (specifically, a "C corporation") in Texas. You should also read the general section on forming a corporation for information that is applicable in any state. Additionally, you should familiarize yourself with the Texas Secretary of State's website, which has useful information and resources.
1. Choose a business name for the corporation and check for availability.
- Please see our section on choosing and checking the availability of a name for your small business, as well as our section on the trademark law aspects of choosing a name.
- Texas law requires that a corporation name contain the word "company," "corporation," "incorporated," or "limited," or an abbreviation of one of those words. Additionally, your corporation name may not be the same as, or deceptively similar to, another name on file with the Secretary of State.
- The Texas Secretary of State can provide a preliminary determination of business name availability. Call (512) 463-5555, dial 7-1-1 for relay services, or e-mail your name inquiry to firstname.lastname@example.org.
- Although you are not required to do so, consider registering your business name as a federal and/or state trademark.
2. Recruit and/or appoint a director or directors for the corporation.
- Under Texas law, a corporation must have at least one director.
- There is no minimum age requirement for directors.
- Directors need not be residents of Texas or shareholders of the corporation, unless the certificate of formation or bylaws so require.
- The certificate of formation must set forth the number of directors that will constitute the initial board of directors and provide their names and addresses. The bylaws should set forth the number of directors that will constitute the corporation's permanent board of directors, if that number is different from the number of directors in the initial board.
3. Prepare and file a certificate of formation with the Secretary of State.
- The filing fee is $300. The Secretary of State's website provides a a simple, fill-in-the-blank form for the certificate of formation, with helpful instructions. For general information on the certificate of formation (usually called "articles of incorporation"), please see the Articles of Incorporation page.
4. Create the corporation's bylaws.
- There is no set criteria for the content of bylaws, but they typically set forth internal rules and procedures for the corporation, touching on issues like the existence and responsibilities of corporate offices, the size of the board of directors and the manner and term of their election, how and when board and shareholder meetings will be held, who may call meetings, and how the board of directors will function. You are not required to file bylaws with the Secretary of State, but the corporation should keep a copy at its principal place a business. For general information on corporate bylaws, please see the Corporate Bylaws page.
5. Hold an organizational meeting.
- See the general section on forming a corporation for details. You can find the Texas statute relating to the organizational meeting at Texas Bus. Orgs. Code § 21.059.
6. Issue stock certificates to the initial owners of the corporation.
- See the general section on forming a corporation for details. The Texas statute relating to issuance of stock certificates is located in Texas Bus. Orgs. Code § 3.202. Unless the certificate of formation states otherwise, the board of directors has the authority to set the "consideration" (i.e., the amount to be received in cash, property, or services) for each share of stock.
7. Obtain any required local licenses.
- See the general section on forming a corporation for details.
8. Determine what tax and other regulatory obligations the corporation has, and take care of any necessary registrations.
- Request an Employer Identification Number (EIN) from the IRS. This can be done via its online application. There is no filing fee.
- If you have an employee or employees in Texas (including corporate officers), you are subject to Texas employment taxes. You can register online using the Texas Employer Portal. For more information on being an employer in Texas, request a copy of the Employer Handbook.
- Whenever you hire an employee in Texas, you must inform both the IRS and the State of Texas. You can find details of all the necessary steps including verifying work eligibility and withholding allowances on the Hiring Employees section of the IRS website. You can find state-level information about reporting new hires at the Texas Employer Portal.
- Texas employers can choose whether or not to provide workers' compensation coverage to their employees. The Texas Department of Insurance, Division of Workers' Compensation administers the program.
- As a small business owner or employer, there may be other informational returns that you have to file annually or semi-annually with the IRS. For more information, take a look at the IRS Guide To Information Returns.
- Texas imposes a franchise tax on corporations. The rate is 1% of income. It is only collected from companies whose gross revenues are greater than $300,000. For more information, see the Revised Texas Franchise Tax page.
9. Open a bank account for your business.
- It is a good idea to keep your business's finances separate from your personal accounts. A good way to do this early on is by opening a bank account for your corporation. You will probably need a Tax ID number (EIN), a copy of the certificate of formation, and a resolution identifying authorized signers if those names are not listed in the certificate. Here is one example of the documentation that banks ask for.
- Texas requires certain documents to be kept at a corporation's principal place of business. The required documents are described in Texas Bus. Orgs. Code § 3.151 and Texas Bus. Orgs. Code § 21.173.
- An S corporation has the same basic organizational structure as a regular corporation, but some of the tax advantages of a partnership or LLC. An S corporation pays no federal income tax, except for tax on certain capital gains and passive income. Instead, the corporation's profits and losses "pass through" to shareholders, and profits are taxed at individual rates on each shareholder's Form 1040. Certain requirements and additional obligations apply -- please see the S Corporation page for details.
- To form an S corporation, designate "S" status with IRS via Form 2553 within 2 months and 15 days of filing your articles of incorporation with Texas. There is no additional paperwork that must be filed with Texas to obtain "S" status.
- S corporations are subject to Texas's franchise tax (discussed above).
- Texas law has provisions relating to what is known as a "close corporation" -- a classification for a corporation with a small number of shareholders that does not issue stock to the general public. In general, running a close corporation permits a less formal management style under the auspices of a shareholders' agreement. Please see the Close Corporation page for details.
- The certificate of formation for a close corporation is different from an ordinary certificate of formation. In particular, it must include the sentence: "This corporation is a close corporation." Additionally, shareholders of a close corporation can enter into a shareholders' agreement that provides for the corporation to be managed by shareholders rather than a board of directors. If they choose to do so, the certificate of formation must set forth the names and addresses of the persons who, pursuant to the shareholders' agreement, will perform the functions of the initial board of directors.
- Forming and operating a close corporation is complex. If you are interested in forming a close corporation, you should contact a lawyer. For more information, see the Close Corporation page on the Secretary of State's website.