How to Start a Business as S-corp in Texas
The Name Game
To start a business in Texas, you must first choose a company name. While this may seem like a no-brainer easy task, there are still some rules that need to be followed. Your company name MUST include one of the following words (or an abbreviated version of them): Company (Co), Corporation (Corp), Incorporated (Inc), or Limited (Ltd). The name chosen must be distinct from any other on file with the Secretary of State. For questions regarding name availability, please refer to the Texas Secretary of State website (SOSDirect).
Once you have determined the selected name is available, you can file a name reservation form through the SOSDirect website. Doing so will reserve your selected name for 120 days.
Pass the Paperwork Please…
Once your selected name has been reserved, you are ready to become official. To do this, your corporation must file form 201 “Certificate of Formation for a For-Profit Corporation” which will list the name and address of the corporation, name and address of the organizer and the board of directors, as well as the purpose of the business.
This form will also ask for the name and address of the agent for service of process. This person or company is appointed by you to accept legal papers on behalf of the corporation should it ever be involved in a lawsuit. The agent must have a physical address in Texas and consent in writing to be your agent prior to being designated. For more information on a registered agent, click here.
That’s it for the state level, but there are still some federal forms that must be filed in order to be legally recognized as an S-Corp. The IRS website is an incredible resource for information for small businesses, and includes detailed instructions on what forms must be filed.
Form 2553 Election By A Small Business Corporation must be signed by all shareholders and submitted to the IRS. You will also need to apply for an Employer Identification number (EIN) by filling out Form SS4 with the IRS.
Once your S-corp is set up, remember to get a business license in the city you are operating. Most cities pull data from newly-registered businesses in the state so they can track down who in their city should have a license. While you can wait for your city to come knocking if you are on a tight budget (and many will simply give you a deadline to get a license), some municipalities may not be so friendly about it.
Time to Think Taxes
You have now made it through the paperwork process and are well on your way to starting a business in Texas. Now it is time to think about the tax implications of that business. By choosing to operate as an S-Corp, the corporation will not be liable for federal income tax. The income of the corporation is passed through the shareholders who then each pay taxes on their share of the corporations profits/losses. Because of this, each shareholder will need to receive a schedule K-1 detailing their share of profits.
Congratulations! You have just completed the framework for starting your business. Don’t stop now– go on to “What Do I Do Next?” to keep building your business.
If you have helpful information or comments to add about starting a business in Texas, feel free to comment below.