What is a Texas Corporation?
A Texas corporation is a corporation that has been formed in the State of Texas. Texas, after the business is incorporated, will from then on be known as the corporation’s home state. If a corporation formed in Texas expands to do business in other states, it will need to register as a foreign corporation in those other states. This places significant importance on choosing your corporation’s home state as it can affect a variety of business functions, including the bottom line. We think Texas is one heck of a place to start a corporation and, throughout this page, you’ll find out why and even how to start a Texas corporation yourself.
Why incorporate in Texas?
Here’s the bacon without the sizzle on why businesses forming a corporation choose to incorporate in Texas:
- The majority of initial shareholders live in Texas
A general rule of thumb when starting a new corporation is to start it in the state where you live. If you’re incorporating a business and you live in Texas, you should probably incorporate in Texas. You can find tons of bull online claiming you’ll save on taxes if you incorporate elsewhere, but the simple truth is, if you don’t live in those states and incorporate there, you’ll probably have to register as a foreign corporation in the state where you live, and all you’ve really done is double your initial start up fees and added some unnecessary taxes and paperwork.
- You run a small business
The federal government is always going to get its pound of flesh from business owners, but corporations that bring in less than $1.13 million in revenue a year aren’t required to pay the Texas Franchise Tax (a fancy name for a business tax). A Texas corporation is still required to submit paperwork proving they didn’t gross more than $1.13 million each year, but they don’t have to pay the tax.
- No Income Tax
Texans don’t pay additional taxes on their income. In most states this would tend to benefit LLCs more, but because our state’s Franchise Tax works like a corporate tax on any business entity, pass-through or not, this is basically an equal advantage across all entity types. By default, a corporation comes equipped with a C-corp tax structure. If you’ve done any preliminary research on how corporations are taxed, you probably know that the C-corp structure creates something known as double taxation. The corporation is taxed on its net profits and then the revenue is taxed again as income tax when it’s distributed to the shareholders (the owners of the corporation). The federal government isn’t going to be any kinder to owners of a corporation, but the State of Texas only taxes corporate incomes once if they make more than $1.13 million in revenue and not at all if the corporation brings in less than that. Of course, the lack of income tax doesn’t exactly do wonders for our property taxes, but it certainly reduces the tax burden for business owners.
Additionally, the Lone Star State’s business environment has a lot to offer. We consistently hit top 10 lists for states with high startup density and business owners per capita. What’s also unique about Texas is that we have multiple big city hubs instead of just one or two like most states. But, of course, if you live here, you already know that. What you might not know, though, is here at Lone Star Registered Agents we’re equipped to get all your start up paperwork filed at a price that won’t break the bank, and, since we deal only with Texas businesses, we know exactly how to do the job right.
Why Hire Us to Start Your Texas Corporation?
When you choose to start a corporation in Texas, with all of our odd requirements and state agencies, you’ll want a real Texas company to incorporate your business for you. Most places offering these services are all hat and no cattle. They have no real stake in Texas and have no clue what it’s like running a business here. We do. When you place an order with us, we’ll have them filed with the state in one business day. We don’t volley your requests around a web of offices in Manhattan or the San Fernando Valley. We’re right here in Austin, and we just do the work so you can start your business on the right foot.
With every Texas corporation we create, we provide:
- Preparation and filing of certificates of formation
- Processing in one business day
- Texas corporation bylaws, initial resolutions, and stock certificates
- Texas registered agent service (renews for $50 a year, every year)
- Franchise tax reminders
- Expert customer service support from local Texas business experts
Plus, we’re reasonably priced. Get your Texas corporation started today for just $460 total (which includes all state fees).
How to Incorporate in Texas
As stated above, we’d be more than happy to incorporate your business here in Texas for $460 total, but if you want to complete the paperwork yourself or are just curious what’s involved, take a look at the steps to starting a Texas corporation below:
1. Fill out the Certificate of Formation- For-Profit Corporation
In Texas, the Certificate of Formation is the document that, once completed and filed with the state, will create your corporation. Filing online on the Texas Secretary of State’s website is the fastest and easiest way to file a corporation’s certificate of formation in Texas. You can file by paper (and if you do so, be sure to complete Form 201- Certificate of Formation- For-Profit Corporation) but it’s a bigger hassle and we don’t recommend it, even though filing online will cost you an additional $8.10 in service fees. The Certificate of Formation costs $300 to file ($308.10 if you file online—and it’s totally worth it).
- Corporation Name
If you want to file your Certification of Formation and get it approved on the first try, do a Texas SOS Business Entity search. This can save you a lot of time and hassle because your entity name cannot be the same as or deceptively similar to the name of any existing domestic or foreign filing entity.
- Registered Agent and Registered Office
A Texas registered agent is an individual or business that receives official mail and service of process on behalf of a Texas Corporation. Your business must have a registered agent with a Texas address that documents can be delivered to at a physical location (not a P.O. box or virtual office). We offer Texas registered agent service for $50 per year.
In this section you must list at least one person that will act in some capacity as a representative to your shareholders. You can think of your shareholder as your owners. Even if you do not have a chosen director or manager at the moment, the name and mailing address of a representative should be listed here until you conduct the first annual meeting of your shareholders and decide on one.
- Authorized Shares
Here is where you establish the initial number of shares you want to authorize (you can issue more stock at a later date, if required). It is recommended to start with an easily divisible number like 1000. Not all authorized stock needs to be issued. After you’ve settled on a number, you can decide on class of stock. You can choose between common stock, which designates ownership and shareholder voting rights, and preferred stock, to which you can assign special rights.
Completing this section of the Certificate of Formation is not mandatory, but if you wish to put in any other stipulations or provisions that you would like to be able to reference on your formation documents, this is the place to do it.
The organizer should be listed as the person who is preparing your Certificate of Formation- Corporation.
- Effectiveness of Filing
This section is as simple as stating when you want your Texas corporation’s formation to become official. You can elect for your Texas corporation to technically be formed up to 90 days after your paperwork is approved.
- Corporation Name
2. Confirm Your Texas Corporation Approval
If you e-file, you should receive a .zip file with a scan of your approved documents in 1-2 business days. If you filed through the mail, you should receive the approved original Texas corporation formation documents back in the mail in 5-10 business days. If your Texas Corporation formation documents are denied for any reason, they will be mailed or emailed back to you explaining why.
3. Obtain a Texas Corporation EIN Tax ID
An Employer Identification Number (EIN/FEIN) is basically a social security number for a business. To pay employees or claim profits on your federal taxes, you will need a EIN number, and you will probably need one to open a bank account in your corporation’s name. You can get an EIN online for free on the IRS website, or if you hire us to be your registered agent or to form your corporation, we can get one for you for an additional $50 fee (just add this option on the order form).
4. Create Your Corporation’s Bylaws
A Texas corporation isn’t required by law to create bylaws, and corporate bylaws aren’t filed with the secretary of state or any government agency. Corporate bylaws are internal documents that outline how the corporation operates and encompass the details of your corporation’s board of directors, how many officers you have and their primary functions, and how and when you have board and shareholder’s meetings, as well as a host of other things. When we form your Texas corporation, we include a set of corporate bylaws for your convenience. You can, however, create your own or pay a lawyer $1000 to create some for you.
5. Hold Your First Board of Directors Meeting
Once your bylaws have been drafted, there is really only one way to ratify them, and that is to have them approved by the board of directors. At this meeting, you’ll also want to consider any initial resolutions and appoint the corporation’s officers (President, Treasurer, Secretary … the people in charge of day to day operations). If you hire Lone Star Registered Agent to form your Texas corporation for you, we include authorized stock certificates to supply your initial shareholders, as well as a resolution to open a business bank account.
6. Open a Bank Account in Your Corporation’s Name
This is the final step to really starting a corporation. It may seem like just one more task, but it’s truly important for one reason: separation of assets. In order to maintain your corporation’s limited liability, you want to make sure all the corporation’s assets stay separate from the owners’ assets, especially the money. If you’re co-mingling assets and you get sued, you’ll have to turn over bank records and they’ll try to come after you personally. Maintaining a bank account in your corporation’s name and keeping personal assets out of it is a great way to maintain that separation should a lawsuit ever come your way. To open the account, you’ll likely need to bring to the bank your certificate of formation, EIN, and a copy of your bylaws. Some banks may even require a resolution to open a bank account with the name of the person who is opening the account for the corporation attached.
Texas Corporations vs. Texas LLCs
Before you get started, you might ask if you should form a Texas LLC or a Texas corporation. A Texas LLC will require less overall upkeep, but it has roughly the same limited liability protections as a Texas corporation. Where the advantage comes for a Texas Corporation is if the goals for your business are to greatly expand, not only in profits but in expenditures (investors, debtors, employees, properties, innovations). If you are only filing for a business entity to form a holding company, a Texas LLC may be a better choice.
In most states, the LLC has some built in taxation advantages as taxes are usually a little simpler because they pass straight through to the owners and the profits are taxed as personal income. The same is true in Texas, but because of our Franchise Tax and how businesses have to pay it based on overall revenue, you will get hit with the tax if you gross more than $1.13 million a year regardless of your entity type. All this is to say, the advantages between LLCs and corporations are reduced in Texas. LLCs are easier to maintain and change and have fewer formalities than corporations do. But if you really want to focus on investing in your company, building a war chest, seeking investors, or just having a ton of owners, the corporation might be the right choice for you.
How do I maintain and manage my Texas Corporation?
After you’ve formed your Texas corporation, you’re required to do some annual maintenance, and you’ll have some hoops that you have to jump through if you wish to change or amend any of the provisions in your Certificate of Formation. Primarily, you will have to keep up on your Texas franchise taxes.
State Franchise Tax
The Texas franchise tax is a “privilege” tax that applies to your entity’s margin in one of four ways, dependent on your entity’s annual revenue. The larger your corporation’s revenue, the more complicated the calculation of your franchise tax, but generally there is a 0.5% tax on the revenue of retailers and wholesalers that gross over $1,130,000. Your first franchise tax report is due on May 15th of the year after you first formed your Texas LLC.
Amendments to Texas Certificate of Formation
In order to make a change on any of the provisions that are set forth in your certificate of formation you will need to file a *424-Certificate of Amendment form with the Texas Secretary of State. You will have to do this to make a change to your entity name, your registered agent, or any other stipulations that you would like to be referenced in you incorporation documents. Pursuant to section 22.105- 22.108 of the Texas Business Organizational Code, any changes to your certificate of formation must be approved by two-thirds of your Texas corporation’s members.
How much does it cost to incorporate in Texas:
The only fee you have to pay up front to incorporate in Texas is the corporate filing fee paid to the Texas Secretary of State Filing fee. It costs $300 ($308.10 if filed online). You can include an extra $25 if you need the filing expedited.