- Get to know why Texas is ideal for starting business ventures
- Understand how to choose a registered agent for your corporation
- Criteria to look out for in your registered agent
- Get to know all the legal and tax procedures for the Texas Certificate of Formation
- Gather detailed insights on how to maintain a corporation in Texas
- Required business licenses and permits to form your corporation in Texas
- Importance of corporate bylaws and maintenance of annual report
- Documents your annual report must include
The strong economy in various sectors and limited liability tax and policies make forming a corporation in Texas an idealistic proposal. The laws and culture of Texas accelerate and foster a steady business culture in Texas. Texas has much to offer to new business ventures with no corporate and personal income taxes. Let us have a thorough look at those via this article.
Benefits of incorporating in Texas
The pros to incorporating in Texas are several, however, the low tax burden ranks at the top of the list. The favorable environment in Texas includes:
- No Corporate Tax
- No Personal Income Tax
- No Estate Tax (Also no inherent and gift tax)
Another remarkable thing to be noted is the low living expenses. Texas being one of the main hubs for business ventures, the living cost remains considerably lesser than in other states. Thus making it a cost-efficient and work-efficient place to thrive. Moreover, with a friendly nature to small and huge business ventures, Texas is open to innovations.
Apart from the above factors, limited liability testing is another crucial reason Texas is known for supporting small-scale and large-scale businesses. As per the Texas tax law, shareholders cannot be held responsible for company debts and will not be subjected to the seizure of assets if an unfavorable situation arises.
General overview of the process
The overall process of forming a Texas LLC or corporation starts by choosing a name for the business, then checking the web space availability and the chance of being remembered. A registered agent is appointed to continue the process, and files for the certificate of formation are prepared along with the EIN application. Further, a bank account is also opened in the corporate's name, followed by applying to obtain the necessary licenses and permits to run the business. Meanwhile, board directors are elected, first shareholder meetings are held. Also, corporate bylaws are drafted.
Steps to Form a Corporation in Texas
Forming a corporation is not tiring if the process is executed systematically. It is advised to follow all the rules and regulations while forming a corporation in Texas for the smooth and authentic functioning of your organization/venture. Additionally, marinating annual reports and other tax compliances will always be beneficial for the collective betterment of the business and its association with the government. The first and foremost step towards forming a corporation starts by choosing the name and its web space availability. Continue reading further to grab more insights on efficiently forming a corporation in Texas.
Choosing a business name
Start by choosing a name for your business that marks an identity with a signature of your prime motives and goals. Often, organization name generators are used with the added advantage of automatically checking the web-space availability for your entity. Always choose a name with a higher chance of retention in peoples' minds.
Appointing a registered agent
A registered agent is a mediator between you and the government. Also, this appointed Registered agent in Texas is the point of contact representing your business and receiving all the legal documents and other communication on your behalf. These agents also assure you that all time-sensitive and additional information is notified on time and stays up-to-date with all the policies and permit details.
- Preparing and filing the Certificate of Formation
- Certificates of formation can be filed both online and offline.
- Online: through the official portal of the State of Secretary, Texas
- Fee Details: Click here
- Offline: By directly filing at the State of Secretary Office, Texas (By paying a nominal fee)
- Address: 1019 Brazos St, Austin, TX 78701, USA
Below mentioned are the required files to be kept ready while filing the Certificate of Formation:
- Details in the finalized name of your LLC
- Contact details of your registered agent
- Details about the initial managers of your LLC
- Elaborate information on the purpose of forming your LLC
- The initial mailing address of your LLC
- Details about the LLC'S authorities
- Approximate commencement date of your LLC
The expected time for receiving approval is 13-15 days; you will receive it via mail. However, the number of days needed for the same might differ concerning national holidays and other governing body activities of the state.
Obtaining an Employer Identification Number (EIN)
EIN refers to an Employer Identification Number, which can be applied in Texas free of cost. EIN is offered by the IRS (Internal Revenue Service) department. The waiting period after applying for EIN is usually two weeks. The application for obtaining EIN can be mailed to email@example.com or faxed to 512-936-0010.
Opening a corporate bank account
Opening a bank account in your corporation's name is essential for smoother functioning and processes. With the below-mentioned documents, a corporate bank account can be easily opened:
- Documentary evidence of address.
- Passport photographs.
- Valid ID of each signatory.
- Residence Permit (where applicable)
- Forms CO7 and CO2.
- Certificate of Incorporation / Business Registration.
- Memorandum and Article of Association.
Legal and regulatory requirements
Texas business formation must abide by specific regulatory controls, checks, and the numerous Texas incorporation benefits. Legal and regulatory requirements in Texas are quite different in Texas in comparison to other states. Additionally, it is mandatory to have "Limited Liability Company" or "Limited company" or abbreviations while fixing the corporate names and for further legal activities.
Texas franchise tax
Texas franchise tax completely works after considering the taxable entity's margin. As per the Texas Comptroller, the following are the tax rates for Texas franchise tax:
- No Tax Due Fee: $1,230,000
- EZ Computation Total Revenue Payable amount: $20 million
- EZ Computation Rate: 0.331%
- Tax Rate (retail or wholesale): 0.375%
- Tax Rate (other than retail or wholesale): 0.75%
- Deduction Limit payable amount for compensation: $400,000
Annual reports and compliance
Annual reports are mandatory and further help in Texas's smooth and foolproof corporate maintenance. These days, even though a more significant part of the details is the technical format, keeping records of annual filing for Texas corporate compliance is still mandatory.
Required licenses and permits
Regardless of the industry/sector, obtaining a sales use and tax permit is mandatory. Additionally, specific permits and licenses vary concerning the type of industry.
For information regarding industry-specific taxes: click here.
Maintaining a corporation in Texas
Maintaining a corporation in Texas involves specific essential updates of the work regularly. Filing annual statements with the department state each year, and paying the required yearly tax returns for profitable corporations are mandatory. Apart from that, corporations are also expected to hold annual meetings and submit corporate minutes.
Board of Directors and Shareholder meetings
After the initial election of board members, the first-ever board meeting is conducted, followed by the drafting of corporate bylaws for the efficient functioning of the Texas incorporation. Other than that below-mentioned pointers are discussed during the board meetings: electing new board members, financial issues, and other future short-term and long-term goals and objectives.
Record keeping and reporting requirements
As a part of corporate maintenance in Texas and for corporate compliance, business entities should always maintain records of the following:
- Current and past employee names and addresses: Maintain accurate account/details of all the current and past employees along with their address proof, designation in the company, withdrawn salaries, performance sheet and their code of conduct.
- Timesheets: Timesheet refers to the data tracker of an employee providing information on his/her number of working hours with the type and amount of work completed.
- Paystubs: Paystub refers to the record showing all the details about the employee's salary with all the wage components.
- Bank statements: Bank statements refer to the sheet showing the details of all the bank transactions the company has made with their clients, customers, employees and other sectors.
- Insurance documents: Insurance documents refer to the documents containing all the information referring to cover, insured, insurance company, premium paid, risk covered, and sum assured
- Contracts: The contract refers to any agreements made between two parties or among parties regarding any obligation of performing or not performing work or any work of collaboration.
- Loans and mortgages: Loans refer to the sum of money borrowed, and mortgages refer to the type of property registered as the security.
- Purchase receipt: Purchase receipts refer to the record that is being kept showing the transaction details
- Customer bills: Customer bills are invoices sharing details on the purchase of the product as a part of doing business.
- Profit and loss statements: Profit and loss statements are financial statements that summarize revenues, costs, expenses, profits made, and losses that occurred in a specific period.
- Balance sheets: Balance sheets are financial statements providing foolproof details on a company's assets, liabilities, and shareholder equity at a specific time.
Recap of the process
- Finalizing a business name and checking the web-space availability
- Appointing a registered agent after understanding the background and carefully cross-checking qualifications and experiences
- Preparing and filing the Certificate of Formation
- Applying and obtaining for EIN
- Opening a bank account under the corporate name
- Selecting the initial Board of Directors
- Drafting of Corporate Bylaws
- Hosting the first board meeting with a pre-set agenda
- Applying and obtaining the required set of business licenses and permits in Texas
- Check for tax and other compliances.
- Staying up-to-date with the annual reports
- Maintenance of records
Additional resources and support
- Texas Secretary of State: Official website
- Texas Department of Revenue: Official website
- Texas EIN Portal: Official website
Forming a corporation in Texas is of multiple benefits, as we saw in the article. From low tax burden to a supportive environment for business, Texas has much more to offer to upcoming business aspirants. Comparatively low cost of living with excellent connectivity to other parts of the states and other states makes Texas the right place to initiate the business. Follow the above steps and take one at a time to have a hassle-free experience while forming your corporation in Texas.
We can help!
At Levy, we help early-stage founders streamline and automate regulatory and legal ops, HR, and finance so you can focus on what matters most — your business.
Like our content?
Subscribe to our blog to stay updated on new posts. Our blog covers advice, inspiration, and practical guides for early-stage founders navigating their start-up journeys.
Note: Our content is for general information purposes only. Levy does not provide legal, accounting, or certified expert advice. Consult a lawyer, CPA, or other professional for such services.