Texas Incorporation Attorneys

How to Form a Corporation in Texas

A corporation is a legally recognized business entity separate from its owners, providing limited liability to owners and allowing for centralized management and easier access to capital through the sale of shares. In Texas, a corporation is established by filing documents with the Texas Secretary of State.

Are you ready to establish your Texas corporation? Our corporate formation attorneys can help you start your business on solid legal footing, fulfill your regulatory obligations, and protect your personal assets from liability.

What Are the Advantages of a Corporation?

One of the key advantages of a corporation is limited liability. This means that shareholders are generally not personally liable for the debts and obligations of the corporation beyond their investment in the company (up to the amount of their shares). This protects the shareholders' personal assets from being seized if the corporation faces financial difficulties.

Additional advantages of forming your business as a corporation include:

• Separate Entity: A corporation is distinct from its owners, who are called shareholders. This means the corporation can own assets, incur debt, and enter into contracts in its own name, separate from the personal assets and liabilities of the shareholders.
• Ownership and Control: Corporations are owned by shareholders who purchase shares of the company's stock. The ownership percentage of each shareholder determines their voting rights on business decisions. A board of directors, elected by the shareholders, oversees the overall management and strategic direction of the corporation.
• Ability to Raise Funds: Corporations can build credit and raise capital by selling shares of stock.
• Tax Efficient: Corporations can often gain tax advantages and write off items. Corporate tax rates are generally lower than personal income tax rates, and corporations can have tax-deductible expenses.

Types of Corporations:

There are a few different types of corporations, with the most common being:

• Close Corporations: Under Texas law, a close corporation is intended for a small group of owners, typically family members, friends, or business partners. To maintain its status, a close corporation restricts the transfer of shares to maintain control within the original ownership circle. In Texas, a close corporation may be governed by a shareholder agreement rather than bylaws or a board of directors, providing more flexibility in the internal governance of the business.
• Non-profit Corporations: These are organizations established for charitable or social purposes and generally do not distribute profits to their owners. To be tax exempt, non-profit corporations must apply for recognition of exemption from the Internal Revenue Service.
• Professional Corporations (PC): A professional corporation is formed for the sole and specific purpose of providing a professional service. "Professional service" is defined by Texas law as any type of personal service that requires a license, such as the services of an attorney, insurance agent, nurse, and physical, occupational, respiratory care, or massage therapist. Due to the prohibition against the corporate practice of medicine, however, licensed physicians should form a professional association (PA) or professional LLC (PLLC).

C-Corp vs. S-Corp

C-Corp and S-Corp are not “types” of corporations, but rather tax classifications. C corporation is the default corporation under IRS rules. Eligible corporations may elect S corporation status by submitting Form 2553 to the IRS. Our business law attorneys can facilitate this process.

• C Corporations: These are for-profit corporations designed to conduct business, generate profits, and pay taxes on and distribute those profits to shareholders. For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. The corporation pays federal taxes on its profits; shareholders pay taxes on profits when distributed as dividends.
• S Corporations: These are smaller, closely held corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Per the IRS, “Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.” All S-corporation shareholders must be U.S. citizens.

Incorporating In Texas

A corporation is legally created when a Certificate of Formation has been filed with the Texas Secretary of State. The Certificate of Formation includes relevant information about the company, including name and address, service or nature of business, business purpose, shares authorized by the corporation, name and address of organizer, and names and addresses of members on the Board of Directors.

As a business law firm, we regularly assist business owners and entrepreneurs with the formation of entities, including corporations and nonprofits.

Our incorporation services include:

• Checking the availability of the name you choose for your entity. (Note: the name under which you transact business must be distinguishable in the records of the Secretary of State from any existing entity registered to do business in Texas.)
• Preparing and filing the Certificate of Formation
• Paying the filing fee with the Texas Secretary of State
• Report Beneficial Ownership Information (unless exempted) to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury (as required by the Corporate Transparency Act, effective January 1, 2024)
• Obtaining a Federal EIN number (or tax ID number)
• Preparing your initial bylaws
• Serving as the registered agent (if requested)

Call (713) 909-7323 or connect with us online to learn more about corporate formation services from our Texas-based law firm. We’ve been advising successful Texas businesses – from start-up to maturity and beyond – since 1987.

Corporate Conversions in Texas

If you need to convert an out-of-state entity to a Texas corporation, or convert another Texas entity to a corporation, our business law firm can facilitate the transformation by filing a certificate of conversion with the Secretary of State and help you navigate any additional legal and regulatory requirements.

Corporate Governance & Bylaws

Most corporations are governed by a board of directors. It is the legal obligation of the board of directors of a corporation to adopt bylaws.

Bylaws define how the corporation will be run, outlining the roles and responsibilities of its directors and shareholders. (Those who own a corporation are referred to as shareholders, and those who manage it are known as directors.) The bylaws also provide clear guidelines on conducting meetings, voting procedures, and handling various corporate matters.

Typically, corporate bylaws will define or specify:

• The number and composition of the board of directors, their roles and responsibilities, and officer positions.
• The procedures for conducting board and shareholder meetings, including notice requirements, voting rights, and quorum (minimum number of participants required).
• Shareholder voting rights regarding major decisions, such as mergers and acquisitions.
• Procedures for handling corporate finances, including recordkeeping and financial reporting.
• The process for amending the bylaws, typically requiring shareholder or board approval.

Bylaws are legally binding documents and serve as a contract between the corporation, its shareholders, and directors.

Our business law attorneys can help you draft bylaws and other governance documents to help minimize disputes, improve decision-making, and protect the interests of all stakeholders, including shareholders, directors, and employees.

Incorporate Your Texas Business With Confidence

The attorneys at Hendershot Cowart P.C. have been guiding Texas businesses on the path to success since 1987. Whether you are a start-up venture or experienced entrepreneur, our award-winning Texas law firm can advise you on entity selection and formation, as well as help you put enforceable business agreements in place that protect your enterprise and your intellectual property from unnecessary risks and litigation.

Call our Houston corporate formation attorneys at (713) 909-7323 or reach out to us online, 24/7.