Any business within Texas may want to at least consider forming a corporation. This is the right step for many but not all. To help decide whether a corporation is right for you, learn more.
Benefits of Texas Corporations
Forming a Texas corporation will give your shareholders limited liability related to the financial obligations of the corporation. In other words, creditors are not able to pursue personal assets as payment for any obligations and debts of the corporation.
Additionally, forming a TX corporation can provide you with personal liability. This would include protection from actions on the part of business partners or employees. Corporations are also able to take advantage of additional benefits. These include a higher appeal for investors thanks to the ease of transferring share ownership. There are also potential tax savings.
Certificate of Formation
One of the most important steps to creating a corporation in Texas is filing your certificate of formation. This is turned into the Texas Secretary of State. It also requires paying a small filing fee. Your corporation begins its existence when you file the certificate unless you specify a start date in the certificate. There are some variations in what you can include in your formation certificate. It must, however, include all of the following information:
- The corporation's name.
- The organizers' addresses and names.
- The director's addresses and names.
- The registered agent.
- The registered office.
- The corporate purpose.
- The stock structure.
- The corporation's duration, if it is not perpetual.
There are also specific information requirements regarding the stock structure in the certificate. It must include the total shares that the corporation can initially issue, including the shares' par value (or indicating they have none). Shares that have this par value are unable to get sold for under the given value. If there is not a par value, the board of the corporation can set the amount they are sold for.
The certificate must additionally outline details in cases when shares are divided into separate classes. In this case, you need to include:
- Each class’s designation.
- The share quantity for every class.
- A par value (Alternatively, an explicit statement that the par value does not exist).
- Relative rights, limitations, and preferences for every class.
Naming a Texas Corporation
Prior to filing a certificate for your Texas corporation, ensure that you can use your chosen name. The Texas Secretary of State can provide you with this information over the phone or via email. Texas also lets you file an application to reserve your chosen name for a full 120 days. You can then renew this reservation for another period of 120 days.
Remember that the name of the corporation needs to include:
- Company.
- Incorporated.
- Corporation.
- Limited.
- An abbreviation for an above word.
The name also cannot be similar or identical to an existing corporation’s name or a name which is reserved. The only exception to this rule is if the other entity provides you with written consent so that you can utilize the name.
Other Required Information
In addition to all the above requirements when forming your Texas corporation, you will need to:
- Specify the organizers, including their address and name (a minimum of one person).
- Specify the directors, including their address and names (a minimum of one person).
- Specify your registered agent plus registered office. They must be a Texas company or resident with authorization to conduct business in the state.
- State your corporate purpose.
- Determine your bylaws.
If you choose to form a Texas corporation, there are organizations available that can assist you with this process.