There are a few basic steps to forming a corporation in Texas, which will enable you to protect personal assets, segregate the assets of one business from another and conduct business in an orderly process in Texas. Here are the basic steps, and online resources to make this an easy task.
You'll Need a Name for Your Corporation First! Here's How to Protect Your Name
You will need a unique name for your corporation, which must also include one of the following terms: “Incorporated,” “Corporation,” “Company,” "Limited," or the abbreviation "Corp.," "Inc.," or "Co.," or "Ltd." To ensure that your corporation is not confused with another corporation in Texas, you must have a unique name. Texas allows the online reservation of a corporation's name via the Texas Secretary of State's website, found at http://www.sos.state.tx.us/corp/sosda/index.shtml. This is the Secretary of State's online portal which will enable you to not only reserve a corporate name, but also research other corporations, their registered agent for receipt of suit papers (i.e. service of process), identity of corporate officers, online electronic filing of corporate forms and many other matters. The Texas Secretary of State also has forms available for downloading which will help streamline your work, like reserving a corporate name.
Prepare and File a Certificate of Formation
Once you have reserved a unique corporate name, you will want to form the corporation. This can be done online, or by completing and filing Form 201, which is the Certificate of Formation. To complete this form, you will need the name of your corporation's Registered Agent for Service of Process and an official business address for the corporation. You will also need the name and address of at least one director for the corporation, the number of shares the corporation will issue and the par value for each share. As a guideline, if you don't intend to actively issue shares for the corporation, you may choose to limit the number of shares in your Bylaws (a separate document) to a small number, such as 500 or 1000. You need not specify a par value, so "no par value" is an option here. Finally, you will need a general statement as to the corporation's purpose, such as "The corporation's purpose is to promote and conduct _______ business in an around the state of Texas."
Appoint a Registered Agent, who will receive suit paper for the Corporation
Texas law requires a Registered Agent to acquiesce and acknowledge his or her role as the registered agent for acceptance of suit papers on the Corporation. While naturally one does not wish to be sued, nevertheless the Corporation will be a legal entity, and may be sued in Texas (and Federal) courts. A person or other business entity must be designated to receive "service of process" (i.e. suit papers). The Texas Secretary of State has a designated form (401-A) which will aid you in making this designation.
Prepare Articles of Incorporation
The Articles of Incorporation are the first document you will complete, with Bylaws a close second, setting out the basic information for the Corporation for your own purposes, and the rules (Bylaws) by which the Corporation shall be governed. The information in the Articles comprises similar information required by the state for the Certificate of Formation, although in a little more detail. Though not necessary, I recommend every Corporation have formal Articles. The Articles of Incorporation will set out the duration of the Corporation (one year? five years? perpetual?) You can also set out the purpose of the Corporation, the names of directors, number of directors, indemnity provisions (for protection of corporate directors and officers), whether the Corporation shall have Members (who are not directors), and issuance of stock shares for the Corporation. The Articles of Incorporation and the Bylaws are best drafted by an attorney to ensure they are complete and effective.
Prepare Bylaws for the Corporation
The Bylaws are the second most important document, as these set out the rules by which the Corporation shall be governed and operated. The Bylaws establish offices for the Corporation, election of the Board of Directors, frequency of Meetings (and how notice for Board or Officer meetings shall be given for the Corporation, and the method of modifying or amending the Bylaws. The Articles of Incorporation and the Bylaws are best drafted by an attorney to ensure they are complete and effective.
Appoint the Board of Directors, who in turn will elect the Corporate Officers at First Meeting
The Board of Directors are appointed in the Articles of Incorporation, (usually from those persons who have initially set up the Corporation), and those directors will use the Articles and Bylaws to determine the formal procedures necessary to send notice and then carry out the first meeting of the Corporation. This initial meeting will allow the Directors to adopt the Bylaws formally for the Corporation, elect officers for the Corporation, and begin the day-to-day operation of the Corporation. They may also authorize the registering of the Corporation with the Internal Revenue Service, so that and EIN (Employer Identification Number) may be obtained. This EIN will be necessary to facilitate the opening of a bank account. The Board can also authorize the distribution of shares of stock, and any other business that is required to get the Corporation up and running.
Foreign Corporations operating in Texas
The Texas Business Organizations Code, which governs corporations in Texas, requires that any Corporation doing business in Texas must register with the Texas Secretary of State and designate a registered agent who will be authorized to accept service of process (i.e. suit papers) filed against the Corporation. The Corporation's name should be checked to make sure it is available in Texas, and a fee will be required to effectuate the registration. All of this, and more may be accomplished online via the Texas Secretary of State's website, found at http://www.sos.state.tx.us/sosda/index.shtml.