Benefits of a corporation
A corporation provides shareholders with limited liability for the corporation’s financial obligations. This means that creditors cannot pursue your personal assets to pay the corporation’s debts and obligations. Forming a corporation can also protect you personally from liability for your employees’ or business partners’ actions. Corporations can offer additional benefits, such as potential tax savings and increased appeal to investors, due to the facility to transfer ownership of shares.
Requirements for incorporating in Texas
Preparing your certificate of formation
To form a Texas corporation, you must file a certificate of formation with the Secretary of State and pay a filing fee. The corporation’s existence begins as soon as the certificate is filed unless the certificate specifies a different date. The certificate of formation may include many provisions, but it must contain the following:
- Name of the corporation
- Names and addresses of organizers
- Names and addresses of directors
- Registered agent and registered office
- Corporate purpose
- Stock structure
- Duration of the corporation, if not perpetual
In regard to stock structure, your certificate of formation must also contain the following information:
- You must state the total number of shares your corporation is initially authorized to issue and state either the par value of the shares or that the shares have no par value. Shares with a par value cannot be sold for less than a stated value. Shares that have no par value can be sold for an amount set by the board of directors.
- If the shares will be divided into classes, you must provide the designation for each class, the number of shares in each class, the par value (or state that there is no par value) and the preferences, limitations and relative rights of each class.
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Naming your corporation
Before you file your certificate of formation, you should check to see if the name you want for your corporation is available. You can do this by calling or emailing the Secretary of State’s office.
You can also reserve a name for your corporation for 120 days by filing an application with the Secretary of State. The reservation can be renewed for additional 120-day periods.
Your corporation’s name must meet the following requirements:
- It must contain one of these words: “company,” “corporation,” “incorporated” or “limited,” or an abbreviation of one of those words.
- It cannot be the same as or deceptively similar to the name of another Texas entity or to a name that has been reserved or registered with the Secretary of State, unless you obtain the other entity’s written consent to use the name.
An organizer, sometimes called an incorporator, is the person who files the incorporation documents. Once the certificate of formation has been filed, the directors take over management of the corporation and the organizers have no further responsibilities.
The following requirements must be met when specifying organizers:
- Each organizer’s name and address must be listed on the certificate of formation.
- There can be one or more organizers.
- An organizer may be a person aged 18 or older, a corporation, or other legal entity. An organizer does not have to live in Texas.
Corporate directors are responsible for managing the business and affairs of the corporation and exercising corporate powers. They may delegate some of these responsibilities to the officers or to committees.
You must meet the following requirements when specifying your corporation’s directors:
- The names and addresses of directors must be included in the certificate of formation.
- There must be at least one director. There is an upper limit on the number of directors.
- There are no age or residency requirements for directors, but the bylaws or certificate of formation may describe qualifications for directors.
Specifying a registered agent and registered office
A registered agent is a person or entity that receives process on behalf of the corporation. “Process” refers to a lawsuit or other legal document. A registered office is a place where the agent can receive these documents. Every corporation must have both a registered agent and a registered office.
The following requirements apply when specifying your corporation’s registered agent and registered office:
- A registered agent may be an individual who is a Texas resident or a company authorized to do business in Texas. The registered agent must have a business office at the same address as your corporation and must sign a written consent to serve as registered agent. Your corporation cannot act as its own agent.
- A registered office is the registered agent’s business address. It must be a street address, not a post office box, but it does not have to be the same as your corporation’s address.
Stating a corporate purpose
To give you the greatest possible flexibility in operating your corporation, Texas law allows you to provide a general description of your corporation’s purpose. Texas uses this general language in its certificate of formation form: “The purpose for which the corporation is formed is for the transaction of any and all lawful business for which a for-profit corporation may be organized under the Texas Business Organizations Code.”
Determining incorporation bylaws
A corporation’s bylaws establish operating rules and procedures that the corporation and its officers, directors and shareholders will follow. Bylaws do not have to include any particular items, but they typically provide for the way officers and directors are chosen, the way meetings are held and the types of committees the corporation will have. Although bylaws are not filed with the Secretary of State, they should be kept on file at your place of business.
You must meet the following requirements when determining your corporation’s bylaws:
- After the certificate of formation is filed, the initial directors must meet to adopt bylaws during the first meeting of the directors.
- Bylaws cannot include anything that is inconsistent with Texas law or the certificate of formation.
Costs of incorporating in Texas
The Texas Secretary of State requires a fee when filing a certificate of formation or reserving a corporation name. Corporations are also required to pay state and federal income taxes.
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