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Texas Corporation Formation Services

How to Form a Corporation in Texas

To form a corporation in Texas, there are several steps you must take (plus, a few optional steps that you might want to think about). Here is everything you need to know about how to form a corporation:

STEP 1: Select a Corporate Name

Your first order of business is to select a name for your corporation. Be sure to check with the Texas list of business names to ensure your selected name is available for use. You can use this link to check if your intended corporation name is available. Your corporation’s name must be differentiated from other businesses that are already on file with the Texas Secretary of State. You do have the ability to reserve your business’ name for 120 days by filing a Name Reservation via the proper form with the Texas Secretary of State. If you choose a name that is too similar to an existing entity, the Texas Secretary of State may reject your filing. If your filing is rejected, it’s not the end of the world – however, this is why it can be a good idea to have a few backup names ready, just in case.

STEP 2: Select a Registered Agent

Every business entity in the State of Texas must select a registered agent. This is because a corporation (like an LLC or partnership) does not have a physical body that can be physically located and physically served with process in the physical world – it is a fully legal creation. As a result, every business entity is required to keep, on file with the Texas Secretary of State, a designation of registered agent – in other words, the physical location that will accept service on behalf of the corporation. You have the option to appoint a registered agent in a variety of ways. You can choose an individual or a corporation (which will in turn have a registered agent – and the chain will end somewhere with a person) who agrees to accept any legal paperwork, citations, lawsuits, or other official documents on behalf of the corporation in the event a lawsuit or other governmental proceeding is brought against the corporation. In order for an entity registered agent to be eligible, they must be authorized to conduct business in the state of Texas in addition to maintaining a physical street address in the state. The agent should be available and agree upon receiving service of process on behalf of your corporation before they are chosen and appointed. There are third-party companies who will serve as your registered agent for a fee. Or you can nominate one of the directors, or your attorney or CPA. Regardless, it’s important to choose someone who you know will communicate any important developments to you. Whoever you choose as your registered agent, it’s important to do so in advance, before proceeding to the next step.

STEP 3: Select Directors and Officers

A simplified structure of a corporation is as follows: (1) shareholders, by vote, elect the board of directors, (2) the board of directors, by vote, selects and instructs management, (3) management handles the day-to-day operations of the corporation. Various fiduciary duties attach to this process. As a new corporation, you must appoint corporate directors who will thenceforth hold board meetings, as well as participate in annual meetings of the shareholders as part of the governance process. You must show the names and addresses of all directors you are appointing in addition to such directors signing a consent statement. A copy of that consent should then be placed with your corporate file record book. You will also need to determine who the initial officers of the corporation will be. At a minimum, you must have a President and Secretary (they can be the same person), but you can empower other officers as well.

STEP 4: File Certificate of Formation (a.k.a. Certificate of Incorporation) With TXSOS

Your next step is to file a Certification of Formation For-Profit Corporation with the Texas Secretary of State. The Texas Business Organization Code (TBOC) requires that your certificate must include (at a minimum) certain information, such as the following:
  • Name of the corporation
  • Name and address of the registered agent (for service of process)
  • Number of shares the corporation is authorized to issue
  • Determine whether shares will have par value (and what par value) or no par value
  • Name and address of organizer
  • Names and addresses of initial directors & officers
  • Initial Mailing Address
  • Date of filing
  • Other information
You can file the form through the Texas Secretary of State website. You also have the option to file your documents by mail or fax, although this method is considerably slower.

STEP 5: Acquire an EIN

An EIN — or employer identification number — is more or less a social security number for an entity. While the entity can exist without the EIN, it is required in order for the entity to file a tax return, open bank accounts, and take various other actions. In other words, you will probably want to get an EIN. The EIN must be obtained directly from the IRS, after your corporation has been formed. You can obtain your EIN by completing a free online application. This number is acquired through the IRS’s EIN website with no filing fee. Please note that if a service attempts to charge you a separate filing fee to obtain your EIN, it might be a scam. The IRS website DOES NOT CHARGE A FEE for obtaining an EIN.

OPTIONAL STEP: Register a DBA

If you plan on using a different name to operate your business aside from the corporate name you selected, you might want to register a fictitious name — also known as an “assumed name” or a “doing business as” (or DBA, for short). Check the laws of your state as many counties and cities have a different set of legal rules for DBAs. One important thing to note about DBAs is that they generally do not offer limitation of liability. To read more about what a DBA does or doesn’t do, we recommend that you read this guide to DBA vs LLC – many of the same differences will apply to a corporation as to an LLC.

STEP 6: Draft and Adopt Corporate Bylaws

The bylaws of a corporation are an extremely important document, but also seldom seen by outsiders. This is because bylaws are internal corporate documents, and as such are virtually never filed with the state or another regulatory entity (except occasionally with the SEC for public companies). Nonetheless, your corporation will not be able to perform its function without well-drafted bylaws. The purpose of corporate bylaws is to set forth the basic foundational rules for how you are going to operate your corporation. For example, voting percentage thresholds for certain actions, the ability to act by unanimous consent, and notice requirements for meetings could all be set forth by the bylaws (within the boundaries established by the TBOC). Keep all bylaws (even previous drafts of bylaws that are subsequently amended) and records other records together in your corporation files. A quality set of corporate bylaws will be critical in proving your corporation is legal should the IRS, banks, creditors, or other associated parties request proof or attempt to pierce the corporate veil.

STEP 7: Write a Shareholders’ Agreement

While this step is technically optional, it is very prudent for any corporation that will have more than one shareholder. A shareholders’ agreement can set forth any number of things, from the steps taken should a shareholder either retire or pass away, to voting agreements, to minority stockholder protection provisions such as registration rights, antidilution rights, and capital call provisions, to granting rights to board observers, to any number of other things. A shareholder agreement, much like the bylaws, need not be filed with the state. A shareholders’ agreement may also include exit provisions, setting forth the mechanisms by which a shareholder can depart from, or be removed from, the corporation. Consulting with an experienced attorney can help navigate through complex business agreements that will often be negotiated within the shareholders’ agreement.

STEP 8: Hold Your First Board of Directors Meeting And Shareholders Meeting (And Document Both With Minutes)

Your infant corporation should hold its initial meeting of the shareholders and its initial meeting of the board of directors. This meeting should discuss all matters of adoption of bylaws, the appointment of corporate officers, the approved directors, the approved officers, the obtaining of an EIN and establishing of a bank account, the authorization of legal and accounting matters, matters associated with authorization to issue stock, and more.

STEP 9: Issue Shares of Stock (and Certificates, Maybe?)

Shares of should be issued to each designated shareholder. Some stock is evidenced by Stock Certificates, and other stock is not. This is a decision to make only after consulting with a qualified corporate attorney. If your shares will be certificated – issue certificates. If not – make the notations of shares in the corporations ledger. The shares will be issued in return for each shareholder’s capital contributions of property, services, cash, or some combination of these. Corporations have the ability to establish a par value or issue a no par value share. The concept of par value is somewhat antiquated, but suffice to say if you wish to have a par value, it should be low (one cent per share, or a fraction of a cent per share). If your stock is certificated, the certificates will state the par value per share. A share of stock is generally classified as a “security.” As a result, the federal and state securities laws will regulate each offer and sale of associated stocks within your corporation. If you plan to raise money in your corporation, it is of utmost importance that you consider the securities laws and consult with a qualified securities lawyer before going forward.

CONCLUSION

Forming a corporation is somewhat more complicated than forming an LLC. Nonetheless, it can have significant benefits. We hope that this article has been educational for you if you are considering a corporation as your choice of business entity. And of course, if you have any questions regarding how to form a corporation in Texas, feel free to read our other blog articles or contact us.  

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