By NiNi Vo‍

‍
By incorporating your business in Texas, you can benefit from many advantages this state extends to enterprises. Broadly, once the business has taken the necessary steps to be incorporated, shareholders of the company will be protected from the company’s liabilities and enjoy advantages regarding tax that they would not find available anywhere else. However, before making the decision to incorporate your business in Texas, it’s important to weigh the advantages - and disadvantages - of incorporation. Let’s start by reviewing the advantages; there are several!
‍

Limited liability protection is one of the most important reasons to incorporate your business. This is due to the fact that corporate shareholders will not be held accountable for debts associated with the company. Their assets cannot be seized if the corporation were to be involved in an unsuccessful lawsuit.

‍

Normally, company shareholders are only liable for what they have invested in the company. For example, if you provided monetary funds to the company and the company were to be sued, you would lose the investment based on the outcome of the lawsuit. However, you would not lose your personal assets. It's important to note that he case changes with corporate officers. They can be legally held responsible for their actions related to the company, such as failing to collect and pay company taxes. Therefore, the situation and outcome from a lawsuit will depend entirely on your standing with the company (and should be considered long term).

‍

Additionally, businesses that are incorporated have the advantage of raising more capital than another business entity would achieve. A big component: corporations have the option of selling stocks in order to raise funds for the company. To decrease any tax burdens, corporations can decide to elect S corp status after meeting a few qualifications. S Corp election results in the corporation being taxed as a partnership, which can eliminate double taxation.

‍

Before you set your sights on doing business in The Lone Star State, some disadvantages of incorporation in general are worth considering. Broadly speaking, incorporation holds a few downsides. First, a huge amount of time (and money) is necessary for incorporating a business, and the formation process is very complex compared to other businesses. Second, the government oversees all actions from corporations, therefore large amounts of paperwork need to be completed and regulations to be followed. Third, incorporation can result in higher taxes. In this case, shareholder dividends are not considered business income deductions, so they are subject to double taxation.

‍
‍

The steps required for incorporating in Texas are no different than incorporating in any other state. First, you will need a name for your corporation. It should include one of the following words; "Corporation", "Incorporated", "Company", or "Limited". You may abbreviate the word if you would like. Note: you are not allowed to use symbols in your Texas corporation’s name.

‍

When it comes to choosing a name for your company, remember to design and select a name that does not conflict with the company’s purpose, and the purpose listed in your Certificate of Formation. Be sure to avoid a name that is similar to another corporation’s name. But in some cases, you can register under the same name as another business as long as you obtain written consent from the business and inform the Secretary of State.

‍

If you wish to use words related to education, you must obtain the Texas Higher Education Coordinating Board’s approval before doing so. Other words that will require approval before use are:

‍

1. Bank
2. Trust
3. Words associating with veterans

‍

When deciding on directors for your Texas corporation, there are several requirements you have to follow. You are required to appoint at least one director. They do not have to be residents of Texas or be of certain age for requirement.

‍

‍

The next step is filing a Certificate of Formation. These documents are technically filed with the Secretary of State; when you are ready to form your corporation, some information will need to be included in this certificate; some info that will not be needed includes identifying information about company officers. Many companies incorporate in Texas for exactly this reason. Make sure to cover (in your Certificate of Formation) the par value of your company's shares, and disclose the quantity of shares you will issue. Note that filing fees cannot be vary by either par value or authorized price. To complete your incorporation in Texas, you will need a registered agent with a physical address (no P.O. boxes) in Texas. Disclose their name and address in your Certificate of Formation. Registered agents need to know how to deal with various official documents, and they must be able to receive them, as well.

‍

For more information on where to incorporate your business, refer to other states including: Delaware, California, Florida, Colorado, New York, and Wyoming.

Are you looking to incorporate your business but don’t know where to start? MassLight can help you get your business started and going by partnering with us through our build for equity program. Feel free to contact us for more information.

‍