Texas has a business-friendly environment and a booming economy that has encouraged a surge of entrepreneurs and established businesses to incorporate within its borders. Texas ranked third in the US for the overall number of new businesses in 2023, with more than 50,000 business openings in the first half of the year – demonstrating the state's growing appeal as a hub for innovation and economic growth.

This guide will cover what you need to know about the process of incorporating in Texas, including the requirements, costs and advantages of incorporating there. We'll also guide you through the incorporation process, from appointing a registered agent to identifying directors and establishing corporate bylaws.

What's in this article?

• Advantages of forming a corporation
  
• Requirements for incorporating in Texas
  
• How much it costs to incorporate in Texas
  
• Steps to incorporate your business in Texas
  

Advantages of forming a corporation

When compared with other business structures, forming a corporation involves more regulatory requirements and administrative work. But the benefits often outweigh those challenges, especially for business owners who want to grow their business, attract investment and protect their ownership. Here are the specific advantages associated with corporations:

• Limited liability: The personal assets of a corporation's shareholders – such as homes and savings – are protected against business debts and liabilities. If the corporation faces legal issues or bankruptcy, shareholders' personal assets are not usually at risk.

• Perpetual existence: Corporations have a perpetual existence, meaning that the business continues to operate even if the ownership changes because of the sale of shares, death or the retirement of shareholders.

• Transferability of ownership: Shares of a corporation can be transferred easily. This facilitates the sale of ownership interests and can make the business more attractive to investors.

• Financing opportunities: Corporations can issue stock, shares and bonds to raise capital and access public capital markets. This gives them a broad range of financing options for business activities.

• Tax benefits: Corporations may benefit from various tax deductions and credits for operating expenses, salaries and benefits. Corporate tax rates are also lower than personal income tax rates in some jurisdictions, reducing overall tax liability.

• Enhanced credibility: Incorporating can improve a business's credibility and reputation, making it easier to attract customers, partners and employees. Corporations must abide by strict regulatory requirements and governance standards, which boosts trust among stakeholders.

• Stock options and equity plans: Corporations can offer stock options and other equity-based incentives, which can help to attract and retain top talent.

• Centralised management: Corporations have a structured management system with clearly defined roles and responsibilities, and a board of directors overseeing major decisions.

• Expansion: It is easy for corporations to expand through franchising or by establishing subsidiaries, which enables growth into new markets and regions. They also have the legal framework to engage in mergers and acquisitions, allowing them to scale and diversify their operations quickly.

Requirements for incorporating in Texas

While most requirements for forming a corporation are fairly standard across the US, there are a few aspects that are unique to Texas.

• Franchise tax: For corporations formed in or doing business in the state, Texas imposes a franchise tax on those with an annualised total revenue that exceeds a specific threshold. As of 2024, that threshold is US$2.47 million.

• Capital requirements: Unlike some other states, Texas does not have a minimum capital requirement to form a corporation. This means that you can start your corporation with a relatively small amount of initial investment.

• Naming requirements: As in all states, Texas has specific business naming requirements. Texas's requirements include rules surrounding the use of certain words and phrases in corporate names. For example, the word "bank" can only be used with approval from the Texas Department of Banking.

• Assumed name (DBA) requirements: If your corporation plans to operate under a name that is different to its legal name, it must file an Assumed Name Certificate (also known as a "doing business as" or "DBA") with the county clerk in each county where it does business.

• Certificate of formation provisions: The Texas Certificate of Formation requires certain provisions that are not always found in other US states, such as specifying the number of authorised shares of stock and their par value.

How much it costs to incorporate in Texas

The total cost to form a corporation in Texas can range from a few hundred to several thousand US dollars, depending on the options that you choose and whether you hire a lawyer. It's always a good idea to research different service providers and compare prices to find the most cost-effective options for your specific needs. You can also explore the official fee schedule on the Texas Secretary of State website.

The minimum costs of incorporating in Texas include a filing fee and a registered agent fee. The following costs and fees might also apply:

• Name reservation fee: A fee to reserve your desired name for 120 days before filing.

• Certified document copy fee: A per-page fee for certified copies of your filed documents.

• Expedited filing fees: A fee for a service to process your documents more quickly.

• Assumed name (DBA) filing fees: A fee to file a DBA in each county where you do business. This is only required if your corporation operates under a different name than its legal name.

• Lawyer fees: If you choose to hire a lawyer to assist you with the incorporation process, you will also need to factor in their fees.

Steps to incorporate your business in Texas

To incorporate your business officially, complete and file Form 201 (Certificate of Formation – For-Profit Corporation) with the Texas secretary of state and pay the associated filing fee. You can file this form online, by post or in person, and you must include the following information:

• Corporate name: Before filing, check the Texas secretary of state's online database to confirm that your desired corporate name is available and is not too similar to existing entities. The name must comply with the naming rules and must include a corporate designation, such as "Corporation", "Incorporated" or "Company", or an abbreviation, such as "Inc." or "Corp."

• Registered agent: The name and address of your registered agent, which can be an individual resident of Texas or a business entity that is authorised to do business in Texas.

• Registered office: The physical Texas address where the registered agent will be available to receive legal documents during working hours. PO Boxes are not acceptable.

• Directors: The names and addresses of your board of directors, who will oversee the corporation's major decisions and establish policies. Texas requires at least one director.

• Purpose clause: The general purpose of your corporation. Most corporations use a broad-purpose clause, such as "to engage in any lawful activity for which corporations may be organised under the Texas Business Organizations Code". You can specify a more detailed purpose if necessary.

• Organisers: The names and addresses of your organisers, who are responsible for executing the Certificate of Formation. Your organisers may include one or more individuals or entities.

Once you've filed, you'll need host an initial meeting of the board of directors to complete the following organisational tasks:

• Adopt corporate bylaws: Formally adopt corporate bylaws. These bylaws outline the corporation's internal governance, including the roles and responsibilities of directors and officers, meeting procedures and other operational rules.

• Elect officers: Appoint individuals to key officer positions (e.g. president, treasurer and secretary).

• Issue stock: Authorise the issuance of stock shares to the initial shareholders.

• Set the fiscal year: Establish the corporation's fiscal year.

Then complete the following administrative tasks to make your corporation fully operational in Texas:

• Issue stock: Prepare and distribute stock certificates to the initial shareholders. Maintain a stock ledger to record the ownership and transfer of shares.

• Obtain the necessary licences and permits: Apply for an Employer Identification Number (EIN) from the IRS, and obtain any required state and local business licences and permits based on your business activities.

• Register for Texas franchise tax: Register for the Texas franchise tax with the Texas Comptroller of Public Accounts. You'll need to submit the Public Information Report (PIR) to the Texas Comptroller on an annual basis, along with the franchise tax report.

• Open a corporate bank account: Open a business bank account to manage corporate finances. In general, you will need the EIN, Certificate of Formation and a copy of the bylaws to open this type of account.