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—showcasing 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

Forming a corporation involves more regulatory requirements and administrative work compared to other business structures. 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 from business debts and liabilities. If the corporation faces legal issues or bankruptcy, shareholders’ personal assets are usually not at risk.

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

• Transferability of ownership: Shares of a corporation can be easily transferred. 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 might 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 attract and retain top talent.

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

• Expansion: Corporations can easily expand through franchising or 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 quickly scale and diversify their operations.

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 annualized total revenue exceeding a specific threshold. As of 2024, that threshold is $2.47 million.

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

• Naming requirements: Like 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 different name than 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 not always found in other states, such as specifying the number of authorized 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 dollars to several thousand, depending on the options you choose and whether you hire an attorney. 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.

• Attorney fees: If you choose to hire an attorney to assist you with the incorporation process, their fees will also factor into the incorporation process.

Steps to incorporate your business in Texas

To officially incorporate your business, 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 mail, 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 not too similar to existing entities. The name must comply with naming rules and must include a corporate designation such as “Corporation,” “Incorporated,” “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 authorized to do business in Texas.

• Registered office: The physical Texas address where the registered agent will be available to receive legal documents during business 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 organized under the Texas Business Organizations Code.” You can specify a more detailed purpose if necessary.

• Organizers: The name and address of your organizers, who are responsible for executing the Certificate of Formation. Your organizers might include one or more individuals or entities.

Once you’ve filed, host an initial meeting of the board of directors to complete the following organizational 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, secretary).

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

• Set 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 necessary licenses and permits: Apply for an Employer Identification Number (EIN) from the IRS, and obtain any required state and local business licenses 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) annually to the Texas Comptroller along with the franchise tax report.

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