Wilson Whitaker Rynell

Experienced Lawyers

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CORPORATE FORMATION

Choosing the correct business form can save a business from overpaying taxes and from personal liability.  Our Dallas business lawyers help business owners select, form, and start businesses.

FORMATION OF A CORPORATION OR INCORPORATED ENTITY

What Is A Corporation?

A corporation is a legal entity that is separate and distinct from its owners and has the contractual rights of an individual.  For instance, corporations can enter into contracts, borrow money, secure loans, sue and be sued, hire employees, own assets, and pay taxes.  A corporation can be created by a single shareholder or by multiple shareholders, and it can be either for profit or charitable.  The creation of a corporation involves a legal process called incorporation, where legal documents such as articles of organization or articles of incorporation are filed stating the primary purpose of the business, name, and location, and the number of shares and types of stock issued. 


What Are The Steps Necessary To Form A Corporation?


The corporate formation is governed by the laws of the state in which the corporation is formed.  Certain states provide various tax advantages.  For instance, and similar to Texas, businesses that are formed in Delaware but do not conduct business there do not need to pay state corporate income tax, and corporate stock owned by individuals outside of Delaware is not taxed.  Both Delaware and Texas require a yearly franchise tax on earnings if a certain threshold is met.  The steps to filing a corporation in Texas with the Texas Secretary of State include the following:

 

  • Choose a name for your corporation;

 

  • File Articles of Organization with the Texas Secretary of State; 

 

  • Select and appoint a registered agent;

 

  • Prepare corporate bylaws;

 

  • Appoint directors;

 

  • Establish the first meeting of the directors;

 

  • Issue stock to owners; and 

 

  • Confirm compliance with tax and regulatory agencies.

 

Your corporation's name must i) contain one of the following words: “Incorporated,” “Corporation,” “Company,” “Limited,” or the abbreviation “Corp.,” “Inc.,” “Co.,” or “Ltd.;” and (ii) must not have already been chosen by and incorporated or formed with the Texas Secretary of State.  Importantly, all certificates of formation must include (i) the corporate name; (ii) the name and address of the agent for service of process; (iii) the name and address of the initial directors; (iv) the number of shares the corporation is authorized to issue and whether they have a par value or no par value; (v) the name and address of the organizer; and (vi) the effective date of the certificate.


What Are Corporate Bylaws?


Corporate bylaws are a document that sets forth the basic ground rules for operating a corporation. Although not filed with the state and not legally required, most banks, creditors, the IRS, and others use bylaws to assure that your corporation has a proper management structure and internal controls. Our business attorneys can advise you on a wide range of legal matters, including corporate law, contract law, copyright registration, trademark registration, mergers and acquisitions, corporate governance, and litigation. In addition to establishing and maintaining corporate bylaws, it is important each new corporation must understand and obtain the following:

 

  • Employer Identification Number (EIN) Registration:  Upon forming your company, you must promptly secure an EIN from the IRS to open bank accounts and file tax returns.

 

  • Initial Sub-"S" Tax Elections:  In order to avoid taxation at both the corporate and personal level, all shareholders of a newly formed corporation must file Form 2552 Election by a Small Business Corporation within the time frame allowed by the IRS (approximately 45 days).

 

  • Acquire All Necessary Business Licenses :  In each state in which the corporation operates, it is essential to check with state and local law to determine if any special permits or filings are required to operate within that state's jurisdiction (e.g., alcoholic & spirit beverage licenses).

 

  • Register With Your State :  In Texas, all corporations are required to register with the Texas Comptroller of Public Accounts and, if necessary, pay Texas franchise taxes when income exceeds $1 million in annual revenue.

 

At Wilson Legal Group, our business lawyers utilize a team-based approach with access to multiple attorneys with substantive years of experience in many practice areas. Whatever your corporate services needs may be, our business attorneys have the talent, resources, and expertise to meet them in an efficient, timely, and cost-effective manner.


Does Registering A Company Guarantee Me A Trademark In The Company Name? 


No, filing and securing a corporate name with the Texas Secretary of State does not guarantee you the right to use that corporate name in commerce, even if that name is allowed and the state accepts your articles of origination. Unless you register your name as a trademark, it can be difficult to maintain and enforce your company's rights to its name. If you wish to protect and enforce your company's name, you need to register the trademark with the United States Patent and Trademark Office (USPTO) by filing a trademark application. Our attorneys can assist you with all business needs, including filing a trademark for your corporate name, preparing your bylaws, and filing articles of organization for your company.



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Additional Business Focus 

What Is A Registered Agent?


The registered agent is not the corporation but the person or entity who would receive service of process on the corporation’s behalf in the event of a lawsuit or other formal notice. For example, a registered agent can be a person or an agency in Texas with a physical street address where the registered agent can be contacted during business hours.  Post office boxes are not acceptable for a registered agent and will not be accepted by the State of Texas.


Do Foreign Corporations Need To Register To Do Business In Texas?


All corporations organized outside of Texas must i) register with the Texas Secretary of State before doing business in Texas, and ii) must appoint a registered agent for service of process within the State of Texas. We know that starting a business or maintaining an existing business may be one of the most challenging and rewarding things you’ll ever do. We know you bring the passion and skill to start and build a business. Our business attorneys can help you understand the legal requirements of running your business in a complex and competitive corporate environment.


C Corporation & S  Corporation Comparison Chart

COMPARE C CORPORAITON S CORPORATION
Tax C Corporation is subject to double taxation, once at the business entity level and then again at the shareholder level. S Corporation income is taxed once at shareholder level through a Schedule K-1.
Ownership C Corporations may have foreign investors, and no limits on shareholders. S Corporations may not have foreign investors and can only have up to 100 shareholders.
Shareholder Rights C Corporation shareholders can receive preferred stock, with or without voting rights, and potential dividends. S Corporation can only issue common stock with voting rights, and all shareholders are treated equally.

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