Texas S Corporation Formation

Is an S Corporation right for your new business?

S Corporations, along with all other incorporated entities in Texas, are filed with the Corporations Division of the Texas Secretary of State. This page provides an overview of the steps required to file an S Corporation in Texas.

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Steps to Forming a Texas S Corporation

Once filed, your Corporation has legal existence in the state of Texas. You are filed when your Articles of Incorporation, the document which provides basic information about your S Corporation, are filed with the Division of Corporations of the Secretary of State. You can review sample Texas Articles of Incorporation to assist you with drafting your own. The information required on this document is as follows:

  • The name of your S Corp: Texas requires that all corporation names end with "Incorporated," "Corporation," or an accepted abbreviation. Additionally, your chosen name must be distinguishable from other entities on file, regardless of the entity type or corporate ending. Texas uses a two-word rule to determine whether a name is available—if the first two words (with few exceptions, such as locative terminology in some cases) are the same as the first two words of a name already in use, you will not be allowed to file unless you obtain permission from the entity causing the naming conflict. Even if it seems obvious to you that your business does not provide the same type of service as the business causing the name conflict, this permission is required. For example, if there is currently a Good News Bakery, LLC on file, you would need a letter of permission before you could use Good News Handyman, Inc.—despite the fact that the entity types are different and the services are likely different.
    To avoid a potential rejection caused by an unforeseen naming conflict, have ClickandInc.com perform a preliminary business name search to determine the availability of your name ahead of time.
  • Registered Agent: Texas requires that all companies have an agent responsible for accepting correspondence and service of process. This person must be listed, along with their physical address. You must either submit their written acceptance along with your articles, or you must keep the acceptance somewhere you can produce it if called to do so. Your registered agent can be an incorporated entity instead of an individual; in this case, an officer of the organization must provide the written acceptance.
  • Directors: You must provide the name and address of at least one director; those listed will serve either until successors are elected or until the first annual meeting of the shareholders.
  • Shares: Your corporation must authorize at least one share, which will be either no par value or a specified par value. Multiple classes of stock are allowed.
  • Purpose: The Texas Business Organizations code allows S Corporations to organize under a broad purpose statement: "any and all lawful business."
  • If additional provisions are added to this basic template, they can be added to the Articles of Incorporation here.
  • Effectiveness of Filing: The Articles will be filed upon processing by the Division of Corporations, unless a future date (not after 90 days from submission) is specified.
  • Organizer: This is the person who drafted the Articles. They must provide their name, address, and signature—electronic, in the case of filing online, or original, in the case of paper forms.

If any of the above information about your business changes, you will need to file a Certificate of Amendment to reflect those changes (or include those changes in your Biennial Statement). It is very important that your registration remains current.

ClickAndInc can set up your Texas S Corporation for you quickly and affordably.

Further Responsibilities of a Texas S Corporation

After you file your Articles of Incorporation, you will have 75 days to file your S Corp Election Form (form 2553) with the IRS. This form will give you S Corporation status, which allows you to be taxed as such.

Corporations of any type are required to file an Annual Report with the Secretary of State. If you fail to honor these requirements, your privileges of filing future documents or conducting business in the state may be withheld.

More Information about a Texas S Corporation

Your S corporation:

  • Can have up to 100 owners/shareholders, but no more
  • May deduct the cost of benefits provided to employers (such as parking permits, health insurance, and so on)
  • Has a board of directors, which oversees the policies of the corporation
  • Cannot have more than one class of shares
  • Issues limited liability for owners
  • Must be owned by US citizens or resident aliens
  • Is taxed as owners' income, not as a separate entity
  • Allows business losses to be deducted on the owners' individual tax returns
  • Allows business losses to be deducted on the owners' individual tax returns

For S corporations, only the salary paid to the owner-employee is subject to employment tax. The remaining income that is paid as a distribution is not subject to employment tax under IRS rules. Therefore, an owner of an S corporation stands to realize substantial employment tax savings. However, the salary you give yourself must not be artificially low; if the IRS finds your salary unreasonable, they may reclassify some of the distribution funds as salary and require you to pay taxes on it.

Other Types of Businesses in Texas

For information on other types of businesses in Texas, please explore the links below.

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