Forming a Corporation in Texas
Real Estate Law For Current or Prospective Property Owners
Forming a Corporation in Texas
Real Estate Law For Current or Prospective Property Owners
Texas Corporation
Forming a Texas Corporation begins with the preparation of a Certificate of Formation, also known as Articles of Incorporation or Articles of Organization. This is the first step in starting a new Corporation or incorporating an existing business.
A Certificate of Formation [Articles of Incorporation] is a formal legal document that needs to be filed with the Texas Secretary of State in Austin, Texas.
You can also specify whether the Corporation is to be a Professional Corporation or a Non-profit Corporation. A Professional Corporation is used for professionals such as doctors, accountants, or lawyers.
Note: If the Corporation intends to conduct business using an assumed or fictitious name, an Assumed Name Certificate should be filed.
Incorporating a Business in Texas
The first step in incorporating a business in Texas is the filing of the Certificate of Formation with the Texas Secretary State.
In general, the Certificate of Formation requires:
The Registered Agent is the person designated by the Corporation to be served with any lawsuit or other claims against the Corporation. The Registered Agent does not need to be an officer or owner of the Corporation.
The person that signs and files the Certificate of Formation is the Organizer. This person does not need to be an officer or owner.
Once the Certificate of Formation is prepared, it needs to be filed with the Texas Secretary of State with a filing fee of about $350.
The Secretary of State makes sure all the required information is provided and it makes sure the name you have chosen for your new Corporation is available.
Note: Name availability is very important. The name cannot be the same or similar to the same of any current corporation in Texas. If the name is not available, the Secretary of State will reject your filing. You will need to refile with a new name.
Once your Certificate of Formation has been approved and your filing fee paid, the Secretary of State will issue a document called Certificate of Filing. It could take up to 10 to 14 days to receive this document.
Texas Certificate of Incorporation
The Certificate of Filing was previously known as the Texas Certificate of Incorporation.
It is essentially the birth certificate for your new Corporation.
The issuance of the Certificate of Formation registers the new Corporation in the records of the Texas Secretary of State’s office.
The Certificate of Filing is proof that your Corporation exists and is registered with the State of Texas.
The Certificate of Filing is your formal government issued document that shows your Corporation exists.
Corporation Bylaws and Minutes
You will also need Bylaws and Minutes of an Organizational Meeting to finish forming your new Corporation.
Bylaws is the document that sets forth the rules and regulations of the Corporation. This document is not filed with any governmental agency. It is for the use of the owners of the corporation. It sets for the powers of the officers, including the president, vice president, secretary, and treasurer.
The Owners of the Corporation are known as Shareholders. The Owners/Shareholders appoint Directors of the Corporation. Directors do not need to be Shareholders, unless the Bylaws or Certificate Filing requires the Directors to be Shareholders.
The Directors of the Corporation appoint the Officers of the Corporation. Officers are usually not Directors or Shareholders, although they can be.
The Officers of the Corporation run the day-to-day operations of the Corporation, including the hiring and firing of employees.
Organize the Corporation
Once the Certificate of Formation is accepted and the Certificate of Filing is received, the Owners need to meet in person or by written agreement to Organize the Corporation. The Owners appoint Directors, which are usually the Owners. The Directors hold a meeting.
This is known as the Organizational Meeting. This step is usually completed by simply signing a document known as a Unanimous Written Consent In Lieu of Organizational Meeting.
The Unanimous Written Consent In Lieu of Organizational Meeting is used to adopt the Corporation’s Bylaws, identify the Corporation’s principal office, adopt a minute book used to keep the records of the Corporation, elect the Officers to run the company, issuance of shares to the Owners, authorize bank accounts, and directs the Officers to take all actions necessary to carry out the business of the company.
This document needs to be signed by all of the Directors who were appointed by the Owners/Shareholders. It does not need to be filed with any governmental agency. It should be kept by the Secretary of the Corporation along with the other records of the Corporation, including the Certificate of Formation, Certificate of Filing, and Bylaws.
C-Corp vs S-Corp
All Texas Corporations and Incorporations start out as a C-corp.
Whether a corporation is a C-Corp or S-Corp is determined by the Internal Revenue Service, not by the State of Texas. It is Federal Tax Law, not State Law.
Note: You must file a form with the IRS to change your C-Corp. to an S-Corp. It is not automatic.
Unless you file for the Sub-S election form on time with the IRS, your corporation will be taxed as a C-Corp. The Corporation is taxed on its income, and its owners are taxed when that income is paid to them.
This is what is commonly known as double taxation. The corporation is taxed, and then the owners are taxed.
To prevent double taxation, the owners may make the Subchapter S election. This means, basically, that the Corporation is not taxed on its income, but the Owners are taxed for the income instead.
This is referred to as a pass through. Income passes through the Corporation and the Owners pay the tax.
Note: Large corporations with many owners may prefer to be taxed as a C-Corp while small corporations with few owners may prefer to be taxed as an S-Corp.
As soon as possible after its formation, the Corporation should consult its tax expert to determine whether to elect the Sub-Chapter S status with the Internal Reserve Service.
Most small corporations make this election to reduce federal income taxes, but there are reasons not to make the election. Be sure to ask your tax expert.
The Internal Revenue Service at IRS.gov has the election form and detailed instructions on how to make the Sub-S election. However, beware of the filing deadlines and other limitations for the Sub-S election.
Corporation EIN Number
The Corporation will need to apply for its Federal EIN Number, which is similar to a Social Security Number. This number is required even though the corporation does not have employees. It is used to keep track of the corporation’s federal income tax liabilities. It is also required to open a bank account.
The Corporation will also need to file state franchise taxes, sales and use taxes for any state in which it does business. Again, be sure to ask a tax expert.
Our fee for the preparation of the formation documents for your new Texas Corporation is $1300.
This fee includes the state filing fee, the preparation and filing of the Certificate of Formation, the preparation of your Bylaws and the preparation of your Minutes of the Organizational Meeting.
We also include detailed written instructions regarding the operation of your new Texas Corporation.
Experienced Texas Real Estate Lawyer
Do you have questions about forming a Corporation? Email your questions to Scott directly at scott@steinbachlaw.com. Or speak with him at 972-960-1850.
The Steinbach Law Firm, P.C. prepares documents to form your new Corporation.
Our fee to prepare the documents to form your new Corporation is $1300.
Scott Steinbach is AV Preeminent rated by Martindale-Hubbell. Peer rated for Highest Level of Professional Excellence.