Texas S Corporation Formation

Texas S Corporation Formation FAQ

Forming an S corporation in Texas has its advantages and disadvantages. Texas S corporation shareholders will reap the benefits of potential tax savings, reduced liability and risk on behalf of the owner. To protect personal assets, business owners should establish an S corporation to minimize risk. Incorporation frees shareholders from personal responsibility from debt and other business obligations. Unlike a partnership or sole proprietorship, where creditors can seize personal assets for business debt, an S corporation will protect business owners except in the event of fraud.

What are the Requirements and Advantages of Establishing an S corporation in Texas?

Forms Required: In Texas, owners must first establish a C corporation with the Texas Secretary of State prior to forming an S corporation. Once Form 2553 is completed and filed, the IRS will notify the business owner of approval or rejection. As an S corporation, the form 1120S will be filed for the federal tax return.
Public Information Report: Each year, the Texas Comptroller requires a public information report. This report contains a variety of information that will later be forwarded to the Secretary of State after review.

Some of the requirements for the report include: The names of each corporation that owns 10% or greater share of the corporation, the name, mailing address and title of each person that is an officer or director of the corporation and the expiration date of each person’s term as officer or director. Also the name of the agent of the corporation and the address of the corporation’s primary place of business should be included. For more business related blog posts, we recommend to check this w2 form maker software review.

Annual Report: The annual report must be filed by May 16th of each year in Texas with the exception of the first year of incorporation. The annual report must contain the following pieces of information: Financial information necessary to determine the corporation’s franchise tax, each officer’s and director’s name and address, the name and address of the corporation’s agent and any other information requested by the comptroller.

Financial Requirements for Starting a Texas S Corporation: In Texas, the S corporation must receive $1000 for the issuance of its shares. This requirement is stated in the certificate of incorporation. The certificate of formation or bylaws will most likely outline the qualifications for the directors in an S corporation. Each S corporation should have one or more directors listed.

Texas-Based Registered Agent Required: Each S corporation registered in Texas must have a registered agent designated to an office in Texas or an authorized business entity that has the authority to transact business in the state. This person should receive official state correspondence and any notifications if the corporation is served with a lawsuit.

Tax Advantages: Texas does not collect either personal income tax or corporate income tax. This is a significant advantage of conducting business in the state of Texas. The corporation franchise tax is based upon the taxable capital and the taxable earned surplus.

Limited Liability of Shareholders: Instead of the owners or shareholders personally being liable for the debts of the corporation, the S corporation establishes the corporation as a separate legal entity. If the business is deemed liable for debts, the shareholders will not be personally responsible, unless the owner or shareholder personally guarantees a portion of the corporation. To avoid being personally liable, establish a corporate tax id number instead of using a personal social security number.

Conclusion

Many corporations have established S corporations in Texas to take advantage of the tax benefits. This is the most significant difference between Texas S corporations and other S corporations. Keep in mind that business owners must have a physical agent present in Texas to establish a corporation in the state.

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