How to Form an S Corporation in Texas
Introduction
S corporations, or “S corps,” are a popular business structure for small-business owners who want the liability protection of a corporation but the tax advantages of a partnership. Forming an S corporation can be tricky, though, and each state has its own rules and procedures. In this article, we’ll walk you through how to form an S corporation in Texas.
Go to the Secretary of State Website
To begin the process of forming an S corporation, go to the Secretary of State website.
The Secretary of State handles all corporate filings, including those for LLCs and corporations. The SOS website provides information on how forms are filed, how to find the right form for your business type, and what fees you’ll need to pay.
Download the Texas Application for Registration (Form 503)
Download the Texas Application for Registration (Form 503).
Fill out the form and submit it. The SOS will process your application and send you a confirmation letter with your new tax identification number, which will be your social security number with an “S” suffix.
Choose a Company Name
You must select a company name that is unique and easy to pronounce. The name should not be so similar to another existing business’ name or trademarked name that it could cause confusion among customers. In addition, you should avoid using offensive or misleading words in your company’s name, as this can result in legal problems down the road.
Check Your Company Name on the SOS’s Website
Once you’ve determined what you want to call your business, make sure that it’s available. This can be done by checking the Texas Secretary of State website for free and filing an online application if needed. Once the application is accepted, you’ll be able to use your name for 90 days before having to file a Statement of Assumed Name (SAS) with them to reserve it permanently; however, this can take up to 24 hours so we recommend doing it immediately after reserving your LLC name through SOS.
Determine Who Your Directors Are
Now that you understand what an S corporation is and have decided to form one, it’s time to determine who your directors are. Directors are the people who manage the company’s day-to-day operations, such as hiring employees and making decisions about new products or services. Directors may also serve as officers (such as president or vice president), but this is not required by law.
The first step in determining how many directors you need is determining if you want multiple directors or just one person running things on behalf of the company. If there will be more than one person involved with overseeing daily operations of your business, then each director must fill out a Form 2553 Election by Certain Small Business Corporations Under IRC 1388(e)(6). This form must be filed before filing your Articles of Incorporation online with Secretary of State.
Decide to Register or Incorporate
If you’re thinking about registering as an S corporation, you must decide if the benefits of liability protection are worth the higher costs associated with incorporating.
For example, if your company is an LLC or a partnership and it has no employees other than its owners, then you can register as an S corporation at no charge. If your company is incorporated in another state and has no employees other than its shareholders, then it can file to become an S corporation by filing Form 2553 with the IRS.
The difference between registering as an S corporation versus incorporating is that incorporating may increase your tax rate because it’s treated differently from other corporations on your taxes. However, incorporating also provides more liability protection for owners and shareholders because there’s less chance of them being personally sued under corporate law than under personal law (which applies when someone sues a sole proprietorship).
Choose a Registered Agent
Once you’ve decided to form an S corporation in Texas, it’s time to choose a registered agent. A registered agent is the person who will receive legal documents on your behalf and notify you of any changes that need to be made. It’s extremely important that you select a reliable, trustworthy individual or business as your registered agent. Because this person is going to receive official documents on behalf of your company, he or she needs access to all relevant information about your company — including its address, phone number and email address — so that they can respond promptly when needed.
File Form 503 with the SOS
The next step is to file form 503 with the SOS. Form 503 is a registration form that allows you to register your company in Texas. This form must be filed in duplicate and signed by all shareholders, officers and directors of the corporation (if applicable). Please be aware that filing this form does not guarantee acceptance as an S corporation by the IRS; however, it does allow you to begin operating as one until final approval from them has been granted
Rules and Procedures of the State
Each state has its own rules and procedures for forming an S corporation, so do your research carefully first. The process is different in every state; you will have to file a different form in each state, pay a fee in each state, and meet with at least one government official for each state.
Some states will allow you to form an S corporation online or by mail. Others require that you visit a government office personally. In some cases, the process can be completed completely online only if certain conditions are met (e.g., if both members of the company are residents of the same state).
In addition to knowing which forms need to be filled out in your region and how much they cost, you should also understand that there are certain legal requirements that must be met before becoming an S corporation:
1. The company must have at least two shareholders.
2. Both members of the company must be U.S. citizens or permanent residents (green card holders).
3. The business cannot be operated in an illegal industry (e.g., gambling, drugs).
Conclusion
Forming an S Corporation in Texas is not difficult. All you need to do is fulfill the requirements mentioned in this article.
