Incorporating a business is crucial for entrepreneurs looking to establish a solid legal foundation, protect personal assets, and gain credibility in the business world. Texas, known for its business-friendly environment, offers a straightforward process for incorporating a business.
Filing incorporation documents with the Texas Secretary of State is required to establish a business in Texas. The Secretary of State offers a fill-in-the-blank certificate of formation, which can be completed independently or with legal assistance. Individuals, other corporations, limited liability companies, partnerships, and foreign entities can incorporate a business in Texas. Incorporating in Texas protects the personal assets of company shareholders from business obligations and debts.
How to Incorporate a Business in Texas
Incorporating a business in Texas involves 10 key steps. These are as follows:
Step 1: Choose a Business Structure
Before diving into the incorporation process, you must choose a suitable business structure. Texas offers several options, each with its own advantages and disadvantages:
- Sole Proprietorship: Simplest form, but offers no liability protection
- Partnership: Similar to a sole proprietorship but involves two or more individuals
- Limited Liability Company (LLC): Provides personal liability protection and flexible management
- Corporation: Offers strong liability protection but involves more formalities.
Consider your business goals, risk tolerance, and tax implications when selecting the most appropriate structure for your business.
Step 2: Identify the Business Name
An incorporator in Texas can choose almost any name for their corporation, as long as it is unique and includes words like “company,” “corporation,” “incorporated,” “limited,” or their abbreviations. The distinctiveness of a business name in Texas is determined by having at least one different keyword or the same keywords in a different order. Keywords or contractions derived from the same root word can still be distinguishable. Sound-alike words are acceptable if they have different meanings, and names in different languages are considered distinguishable.
The corporation’s name must not falsely imply government affiliation or an unlawful purpose. Certain words require additional approval, and names deemed “grossly offensive” will not be accepted. Reservation of a name with the Secretary of State is possible for a fee, lasting 120 days with an option for renewal. Checking the availability of the corresponding web domain is advisable. If a corporation operates under a name different from its legal name, it must file an Assumed Name Certificate.
Step 3: Decide on a Registered Agent
The registered agent of a business is responsible for receiving service of process, government correspondence, and compliance documents on behalf of the business.
While a registered agent can be an individual or an entity, a corporation cannot act as its own registered agent. However, a director or officer is allowed to serve as an agent. Some businesses, particularly larger ones, opt for a registered agent service. Regardless, in Texas, a registered agent must fulfill the following requirements:
- Be at least 18 years old.
- The agent must have a physical address in Texas. This requirement ensures that your business has a designated point of contact for official communications.
- Be available in person during normal business hours.
For the appointment, a Texas registered agent must provide written or electronic consent, which should be retained in business records but does not need to be filed with the Secretary of State.
Step 4: Choose Initial Directors
The corporation must have at least one director responsible for overseeing its operations. Corporate directors play a key role in adopting, amending, and repealing operational bylaws and in the election, supervision, and removal of officers.
In the organizational meeting, incorporators should elect the board of directors, or initial directors should appoint officers.
The initial corporate directors will remain on the board until the first annual shareholders meeting, where shareholders will elect the board members.
Step 5: Identify a Share Structure
To finalize the Certificate of Formation, incorporators and directors must determine the share structure, specifying the authorized shares, issuing shares to shareholders, and any shares with distinct rights and privileges.
Unlike certain states, Texas does not mandate a par value, which is a minimum value for stocks. Instead, incorporators decide whether the stock will have a par value in the Certificate of Formation.
Step 6: Execute a Certificate of Formation
The official document creating a Texas corporation is the Certificate of Formation, which can be submitted online, by fax, in person, or by mail to the Texas Secretary of State, accompanied by a filing fee. Texas’ standard form (Form 201) is designed for corporations with a single share class; those with multiple share classes need to create a custom document, often with the assistance of a business lawyer.
Key elements in the Certificate of Formation include:
- Corporate name
- Registered agent’s name and street address
- Directors’ names and addresses
- Authorized shares
- The incorporator’s (organizer’s) name and address
- Signature of the organizer.
Step 7: Hold an Organizational Meeting
Conduct the organizational meeting of the incorporators or initial directors in accordance with Tex. Bus. & Com. Code § 21.059. “No later than the third day before the meeting date, the directors or those convening the meeting must provide notice of the meeting’s time and location to each other director or individual listed in the certificate of formation.” Ensure minutes of this meeting are recorded.
Participants in the initial organizational meeting typically:
- Establish a corporate records book for essential record-keeping
- Develop and endorse bylaws
- Choose initial directors and officers
- Pick a corporate bank
- Determine the corporation’s fiscal year
- Complete an Incorporator’s Statement
- Ratify the Certificate of Formation.
The details of the organizational meeting should be documented in meeting minutes by an incorporator or director and be stored alongside the corporate records, as mandated by Texas.
Step 8: Draft Bylaws or Operating Agreement
Create bylaws as the governing document for the corporation. The bylaws can include any provisions for managing and regulating the corporation as long as they comply with the law and articles of incorporation.
Bylaws should be regularly updated and can be amended through a special meeting. They may outline the following:
- Governance structure, defining roles of directors and officers
- Meeting procedures, voting methods, and the process for electing officers and directors
- Definition of a “quorum” for voting purposes
- Annual shareholders meeting date
- Notification procedures for meetings (mandatory in Texas for all eligible voting shareholders)
- Record-keeping, including the management of meeting minutes (mandatory in Texas)
- Dispute resolution processes
- Negotiation of contracts
- Procedures for amending and updating bylaws
- Fiduciary duties to the corporation, such as duties of care and loyalty.
In Texas, a close corporation can be managed according to a shareholder’s agreement rather than through bylaws or a board of directors.
Step 9: Issue Stock
Shares may be issued to shareholders in exchange for various valuables, including cash, property, services, or a combination of these. A stock transfer ledger is essential for recording each shareholder’s name and contact details.
Stocks are classified as securities, and federal law provides exemptions for private offerings (unadvertised stock sales to a limited number of individuals) as long as a corporation files Form D within fifteen days of the initial sale. If a corporation uses Rule 506(b) for its exemption, the issued stocks will be considered restricted securities.
Similarly, Texas law exempts unadvertised share sales to 35 or fewer investors, who are either sophisticated investors or individuals with an existing relationship to the corporation, its founders, principal shareholders, officers, or directors. If a corporation employs Federal Rule 506, it must submit a Form D notice filing and fee within 15 days of the first sale.
Corporations seeking to sell stock or target more investors publicly should seek advice from a business lawyer.
Step 10: Comply With State and Local Regulations
A corporation must obtain an Employer Identification Number (EIN) or Federal Tax Identification Number (FTIN) to open its business bank account, meet tax obligations, and hire employees. Applying for an EIN can be done online or by mail through the IRS.
Every Texas corporation is required to pay Texas franchise taxes to the Texas Comptroller. Registering with the Texas Workforce Commission is necessary if a corporation pays wages. Additionally, corporations selling physical products may need to acquire a seller’s permit for tax collection and reporting.
If a Texas corporation opts for S corporation status, it must submit Form 2553 Election by a Small Business Corporation to the IRS. The filing deadline for Form 2553 is within two months and 15 days from the start of the effective tax year.
Incorporators should also verify the need for other essential business licenses, such as health permits for a restaurant. These licenses may be required at federal, state, and local levels, and the Texas Business Permit Office provides further guidance.
How Can Weisblatt Business Law Attorneys Help You?
When incorporating a business in Texas, having a knowledgeable legal partner by your side can make the process smoother, ensuring compliance with all legal requirements and providing valuable guidance. Weisblatt Law Firm is here to assist you every step of the way, offering a range of services tailored to your needs. Here is how we can help you:
- Business Structure Consultation: Choosing the right business structure is a crucial decision that impacts liability, taxation, and overall business operations. Our business law attorneys will assess your business goals and help you determine the most suitable structure.
- Name Availability and Registration: We will conduct a thorough search to ensure the availability of your desired business name, helping you avoid potential conflicts. Once the name is confirmed, we will handle the necessary registration processes, ensuring compliance with Texas Secretary of State requirements.
- Registered Agent Services: As part of our comprehensive services, we offer registered agent services. Our team can serve as your registered agent, receiving legal documents and official correspondence on behalf of your business, ensuring that you stay informed and in compliance with state regulations.
- Document Preparation and Filing: Our attorneys will prepare all required formation documents accurately and efficiently. Whether you are establishing a corporation or an LLC, we will guide you through filing with the Texas Secretary of State, minimizing the risk of errors and delays.
- Bylaws or Operating Agreement Drafting: For corporations, we will draft comprehensive bylaws, and for LLCs, we will create a detailed operating agreement. These documents outline internal governance structures, decision-making processes, and member/shareholder rights.
- Tax and Regulatory Compliance: Our team will assist you in understanding and complying with Texas state tax obligations and regulatory requirements. We will guide you through the process of obtaining necessary permits and licenses, ensuring that your business operates within the legal framework.
- EIN Application Assistance: Our business lawyers will handle the application process for your Employer Identification Number (EIN) with the IRS, streamlining the tax identification process for your business.
Contact Weisblatt Law Firm to Incorporate Your Business Today
Incorporating a business in Texas requires careful consideration of legal nuances and adherence to state regulations. Weisblatt business law attorneys bring a wealth of experience and a client-centric approach, ensuring you receive comprehensive legal support throughout the entire business incorporation process. Contact us at (713) 666-1981 for a free phone consultation.
Attorney Andrew Weisblatt
Mr. Weisblatt has practiced continuously since becoming licensed in 1992 and has represented businesses ranging in size from one person start-up ventures to multi-national corporations employing hundreds of people in multiple countries. From 2005 through 2009 Mr. Weisblatt was in-house counsel and chief operating officer of a multi-national corporation in the steel products industry. That in-house position provided valuable insight into how businesses work and what they actually need from their lawyers – both in-house and outside counsel. Attorney Bio
