Having the ninth largest economy in the world, Texas is a highly ranked destination for those looking to expand or set up their business. With no corporate income tax, no personal income tax, low energy costs and low land costs, it’s no wonder that 10% of the Fortune 500 companies have chosen the Lone Star state as their home.
Here are some tips on how to set up a company in this bustling state if, after consulting with your legal and tax advisors, you decide Texas is the next stop for your enterprise.
If you are looking for information on how to form your business in the U.S., which state to choose and how U.S. entity formation differs from forming elsewhere, we’d recommend you read this article first: How to expand your business in the U.S.
Steps for Forming a Company in Texas
International companies considering doing business in the United States must determine, among other important matters, the type of business entity that will be used to conduct business and the U.S. jurisdictions in which the company will register.
The choice of company type (common types include corporations and limited liability companies) and the jurisdictions in which it will register are controlled by legal, tax, and business factors unique to the company. Consulting with a professional advisor qualified to provide U.S. tax and legal advice is recommended.
Once you have decided whether your entity will be a Corporation or a Limited Liability Company (LLC) and that Texas is the location for your business, you will need to complete and file the necessary forms.
Corporation (Titles 1 and 2 of the Texas Business Organisations Code (BOC)
To form a corporation in Texas, the first step is to complete Form 201 – Certificate of Formation – For-Profit Corporation. When selecting the name of a corporation, it’s important to pay close attention to the words in the name as some words used may require consent from other agencies. For example, should the entity include the word “University”, consent from the Texas Board of Higher Education would be required to be submitted with the Certificate of Formation. In most cases, if the name is different by one number or letter from another entity, the name will be accepted.
Texas does not require officer information such as CEO, Vice President, Secretary, or Treasurer to be included on the Certificate of Formation; however, a Director is required to be listed. The Certificate of Formation is signed by the organiser.
Limited Liability Company (Title 3, Chapter 101 of the Texas Board Organisations Code (BOC)
To form a limited liability company in Texas, you use Form 205 – Certificate of Formation – Limited Liability Company. Again, all Texas applications come with detailed instructions on how the form should be prepped. As with corporations, entity names may be restricted when certain words are used and may require additional approvals prior to filing.
An LLC in Texas will consist of either a Manager or Members which are listed on the form as a Governing Person. This Certificate of Formation is also signed by the organiser.
Unlike some states that may charge by number of pages, stock history, or entity type, Texas charges a flat fee for both Corporations and LLCs. At $300, Texas falls within the median price range for domestic formations in the U.S. Upon submission of a Certificate of Formation, Texas generally provides filing evidence back within 4-5 business days.
Maintaining Your Business
Upon filing with the Secretary of State, a notification will be sent to the Texas Comptroller’s Office, which is Texas’ Revenue Department. Entity status in Texas is determined by the Texas Comptroller, not the Secretary of State, so annual franchise tax reports are filed with the Comptroller, unlike many other states in the U.S. These franchise tax reports are due by 15th May each year.
Additionally, the entity is required to file a Public Information Report (PIR), which becomes part of the public record. The PIR lists officer information and also confirms registered agent information.
The Comptroller will issue each entity an 11-digit taxpayer identification number used exclusively with this agency. Each entity will also receive a confidential Webfile ID number issued only to the entity. This Webfile ID is not available to the public and is used by the entity to electronically file their annual franchise taxes and PIRs. It’s important to save this number because retrieving it if lost or misplaced can be difficult. Webfile ID numbers consist of either XT or RT followed by six digits (i.e. XT123456, RT123456).
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.