By NiNi Vo
Why incorporate in Texas?
By incorporating your business in Texas, you can receive the many benefits that come along with it. Once the business has taken the necessary steps to be incorporated, shareholders of the company will be protected from the company’s liabilities and enjoy advantages regarding tax that they would not find available anywhere else.
Pros and Cons of Incorporating in Texas
Before making the decision to incorporate your business in Texas, it’s important to weigh the advantages and disadvantages of incorporation. Let’s start by reviewing the benefits that come with forming a corporation in the first place.
Limited liability protection is one of the most important reasons to incorporate your business. This is due to the fact that corporate shareholders will not be held accountable for debts associated with the company, and their assets cannot be seized if the corporation were to be involved in an unsuccessful lawsuit.
Normally, company shareholders are only liable for what they have invested in the company. For example, if you provided monetary funds to the company and the company were to be sued, you would lose the investment based on the outcome of the lawsuit, but you would not lose your personal assets. However, the case is different with corporate officers. They can be legally held responsible for their actions related to the company such as failing to collect and pay company taxes. Therefore, the situation and outcome from a lawsuit will depend entirely on your standing with the company and should be considered long term.
Additionally, businesses that are incorporated have the advantage of raising more capital than another business entity would achieve. A big component is that corporations have the option of selling stocks in order to raise funds for the company.
To decrease any tax burdens, corporations can decide to elect S corp status after meeting a few qualifications. S Corp election results in the corporation being taxed as a partnership, which can eliminate double taxation.
These are three important disadvantages you should consider before forming a corporation:
- A huge amount of time and money is necessary for incorporating a business, and the formation process is very complex compared to other businesses.
- The government oversees all actions from corporations, therefore large amounts of paperwork need to be completed and regulations to be followed.
- Incorporation can result in higher taxes. In this case, shareholder dividends are not considered business income deductions, so they are subject to double taxation.
Steps for Incorporating in Texas
The steps required for incorporating in Texas are no different than incorporating in any other state. First, you will need a name for your corporation. It should include one of the following words; Corporation, Incorporated, Company, or Limited. You may abbreviate the word if you would like. However, you are not allowed to use symbols in your Texas corporation’s name.
When it comes to choosing a name for your company, remember to make it so that the name does not conflict with the company’s purpose and the purpose listed in your Certificate of Formation. Be sure to avoid a name that is similar to another corporation’s name. But in some cases, you can register under the same name as another business as long as you obtain written consent from the business and inform the Secretary of State.
If you wish to use words related to education, you must obtain the Texas Higher Education Coordinating Board’s approval before doing so. Other words that will require approval before use are:
- Words associating with veterans
When deciding on directors for your Texas corporation, there are several requirements you have to follow. You are required to appoint at least one director. They do not have to be residents of Texas or be of certain age for requirement.
When you are ready to form your corporation, you have to file a Certificate of Formation with the Secretary of State in Texas. In the document, you will need to include multiple pieces of information about your corporation. The good thing about Texas is that they do not require you to disclose the names or addresses of your company’s officers in the formation documents. This is one of the biggest advantages that comes from incorporating in Texas.
Also in your Certificate of Formation, you must address how many shares your corporation plans on issuing, along with the par value of these shares. Your filing fees will not be affected by a higher authorized price of shares or par value.
Additionally, Texas corporations need a registered agent. The agent will need to have a physical Texas address, a Post Office box does not count, and you must disclose their name and address in your Certificate of Formation. The registered agent needs to be available to accept all forms of government and legal documents during normal business hours. People with occupations such as attorneys, doctors, and accountants can establish a professional corporation in Texas.
Are you looking to incorporate your business but don’t know where to start? MassLight can help you get your business started and going by partnering with us through our build for equity program. Feel free to contact us for more information.