Making a new corporation is one of the most common reasons for using Texas corporation and partnership law. A small business may prefer to file the documentation needed to incorporate a business directly with the state. There are also many companies that provide business formation services for a fee.

The most important factor in incorporating in Texas is choosing a specific business structure. Texas partnership law makes some important distinctions between a corporation and a partnership. A partnership generally does not pay a business tax although the partners are liable for business debts.

Corporate law defines the way in which the following entities interact:

1. Shareholders that collectively own companies in Texas. Shareholders may hold special privileges such electing a board of directors, proposing resolutions and sharing in the company’s income.

2. Directors that oversee the company’s activities. The activities of the board of directors are typically determined by the company’s bylaws. The board of directors and the shareholders are typically the same group of people in a small business.

3. Employees that provide expertise and perform labor for the company. Employees are also shareholders in many cases.

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Select the best structure for your business according to Texas corporation laws

Your choice of business types can include corporations, full partnerships and limited partnerships. There are many sites that summarize business laws in Texas and you may also need an attorney to explain these laws to you.

I recommend: Texas Small Business Law Blog provides blogs on corporate law in Texas and it also maintains summaries of those laws. The State Bar of Texas tracks legislative updates to business law in Texas.

Use a company to create a business under Texas corporation and partnership law

There many online services that can submit the required forms on your behalf in exchange for a fee. However, you will still need to comply with the disclosure, operating and reporting requirements.

I recommend: Start Biz Here can perform the steps needed to form a business and provides specific information on incorporation in Texas. Instacorp.com allows you to create corporations by selecting the state and type of business.

Create a new business by yourself with Texas corporation laws

Each state has a department that is responsible for the formation of new businesses. You can complete these forms yourself and submit them directly to the correct government department.

I recommend: The Texas Secretary of State has the forms needed for business formation and also maintains extensive resources for Texas businesses. The Texas State College of Business Administration provides specific resources for incorporating a business in Texas.

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• •  You will need to select a name before you create a Texas company. Many online services provide a name search function to determine if a particular name has been used before. The required forms will also provide spaces for more than one business name in many cases. This increases the chances that an unused name can be found.

Starting a Texas business requires deciding whether incorporating in Texas or forming a Texas partnership will provide the most desirable benefits. The decision can be crucial to your business’ success, as it determines the amount of risk that you personally assume, the number and type of shareholders you are permitted, your tax obligations, and government regulatory requirements .

Incorporating in Texas is usually the preferred option as it attracts investors and provides the most personal liability protection. However, if you do not have outside investors or other stakeholders, this might not be the best option for you because profits will be subject to taxation at both the business and personal levels.

Forming a business under Texas partnership law alleviates the potential double taxation problem because business income from a partnership is subject only to personal income tax.

The options available for incorporating in Texas or forming a Texas partnership under Texas corporate law are:

1. Business Corporation

2. Professional Corporation

3. Limited Liability Company (LLC)

4. General Partnership

5. Registered Limited Liability Partnership

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Bet on the Texas business structure that's best for your business

When determining which legal structure is best for your business, assess personal liability obligations, understand the tax implications, become aware of operating formality requirements, and familiarize yourself with any related reporting regulations

I recommend: See tips from the Texas Secretary of State about choosing a business structure or get advice from FindLaw.

Turn your business idea into an official Texas company

You must file an application with the Texas Secretary of State and pay a fee in order to form companies in Texas. For example, forming a Texas RLLP requires filing an application with the Texas Secretary of State and paying a fee of $200 for each partner.

I recommend: File for Texas incorporation or LLC formation online with the Texas Secretary of State SOSDirect service or use Legalzoom or The Company Corporation to complete all the steps required to incorporate in Texas or form a Texas partnership.

Know your legal obligations under Texas corporation and partnership law

Texas corporation laws require Texas companies and partnerships to comply with all respective formation, operating, reporting, and disclosure requirements. The requirements are specifically set forth under each enabling statute.

I recommend: You should review the complete texts of the statutes at the Corporations Section of the Texas Secretary of State Office.

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• •  Depending on where you do business, you might have a choice of which state(s) you can choose for incorporation or forming a partnership. State laws vary, so conduct your own research or find an attorney who can advise you as to which state's laws will be most advantageous to your business needs.
• •  Texas Corporation and partnership law is favorable to Texas partnerships as it allows general partnerships to restructure as registered limited liability partnerships (RLLPs). Texas partnership law protects partners in an RLLP from liability for debts and obligations assumed by other partners or their agents. Thus, RLLPs allow for all the operational freedoms of a partnership while granting the protections offered by a corporation - whereas an LLC requires adherence to strict operating formalities in order to incur tax benefits.
• •  Texas corporate law also authorizes limited liability companies, which are regulated like corporations and provide the similar liability protection, but are taxed like partnerships.

The key to making the most of Texas corporation and partnership law is the decision to incorporate your business. A corporation affects your ability to gain capital, controls the amount of debt you assume and determines your tax obligations. However, these advantages must be balanced against the additional taxes your business will incur.

Texas partnership law makes a partnership subject only to personal income tax, unlike a corporation. On the other hand, business partners may be held responsible for business debts.

There are several options for forming a company under Texas corporate law. These include:

1. Texas incorporation as a profit or non-profit corporation. An S corporation (S-corp) is taxed under Subchapter S of the Internal Revenue Code which generally does not include income taxes.

2. A Texas limited liability company. This is a hybrid business entity that shares the characteristics of both a corporation and partnership. It pays incomes taxes and is more suitable for a small business with one owner.

3. A Texas limited partnership. This type of partnership has limited partners in addition to general partners.

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Determine the type of corporation that best suits your business under Texas corporation laws

The most important factors to consider are the personal liability obligations and tax implications. You should also familiarize yourself with the operating requirements and reporting regulations.

I recommend: LearnAboutLaw.com provides a summary of Texas corporate law and also lists the basic steps needed to create a corporation. The Texas Secretary of State has extensive information available regarding the creation of a business organization.

Find an attorney that specializes in Texas corporation and partnership law

Incorporating in Texas must comply with the disclosure, operating and reporting requirements. Texas corporation law specifies these requirements in detail.

I recommend: Marvin L. Rader & Associates in League City specializes in Texas Incorporation and Partnerships. Thomas Finley is based in Dallas and has expertise in all phases of business formation.

Register your TX corporation or TX partnership

You must file the registration forms and pay the associated fees as required by Texas corporation law in order to form a TX corporation or TX partnership. You may also need to file Articles of Incorporation, depending on the type of corporation you decide to register.

I recommend: IncorporateTime.com provides the fee schedule for each state and also files the documentation needed to create a corporation in Texas. 101incorporate.com can incorporate your business online and also performs other business services.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Texas corporation law requires annual fees and filings to maintain your corporation. Corporations are automatically C-corps unless they specifically register as S-corps with the primary difference being the way they are taxed. One person may frequently hold more than one position in these corporations and many if not all shareholders are also directors in a small corporation.

Texas corporate law regulates the manner in which creditors, directors, employees, shareholders and other stakeholders in a Texas business interact with one another. It is also part of the law of business associations in Texas that includes partnerships. The owners of a Texas partnership share in the profits and losses of a business venture, as well as enjoy tax benefits. The primary disadvantage of partnerships over corporations in Texas is that owners in a partnership have a greater personal liability than shareholders in a corporation.

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Shareholder

A shareholder owns one or more shares of stock in a Texas corporation; a group of shareholders collectively owns the company. Texas corporation law grants specific rights to the shareholders of a corporation.

I recommend: TexasLegalEntities.com specifically discusses the role of shareholders in a Texas corporation.

Director

A director of a corporation in Texas assists in overseeing the corporation's activities. The group of directors may be jointly referred to as the 'board of directors,' 'board of trustees' or 'board of governors.'

I recommend: MedLawPlus.com provides selected articles of the Texas Corporate Statutes that specify the duties of a corporation's board of directors.

Business Organizations Code (BOC)

The Texas Business Organizations Code (BOC) is the portion of Texas law that deals with business entities. The most recent BOC in Texas was enacted in 2003.

I recommend: The Texas Secretary of State provides an overview along with a link to the Texas Business Organizations Code.

Limited liability company (LLC)

A limited liability company (LLC) is a type of business entity in Texas that limits the liability of its owners to the value of each owner's investment in a company. A Texas company with a single owner is usually better off with an LLC.

I recommend: LimitedLiabilityCompanyCenter.com provides the specific procedures for creating an LLC in Texas, and includes a link to a comprehensive description of an LLC.

Sole proprietorship

A sole proprietorship in Texas is a type of business entity which has no legal existence apart from its owner. The debts of the business are, therefore, the debts of the owner and the liability limitations of an LLC do not apply to the sole proprietor.

I recommend: Cook & Cook Law Offices is based in Plano and provides a definition of "sole proprietorship" that is specific to Texas.

S Corporations

An S corporation is a pass-through business entity for tax purposes. This only affects federal taxes in Texas since Texas does not have a state income tax.

I recommend: Incfile.com provides a description of an S corporation that is specific to Texas.