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Forming a Corporation

Our Team of Business Formation Lawyers Serves Entrepreneurs, Leaders, and Businesspeople in Pearland, TX

At Smith, Reed & Armstrong, PLLC, we understand the risk you face as a business owner. Our business formation attorneys understand the importance of laying a solid foundation and are prepared to set you up for decades of future success. If you are considering forming a corporation from scratch or changing your business to a corporation, you’re going to need an experienced attorney to help you sort it all out and get it done quickly, efficiently, and correctly.

Call (281) 677-3474 today to speak with an experienced business lawyer in Pearland. You can also contact us onlineto schedule a consultation.

What Is a Corporation?

Corporations are independent legal entities, wholly separate from the people who control them. They generally shield people running the company from liability, making them preferable for many business owners.

Registering to Form a Corporation in Texas

The first step to incorporation is registering the entity with the Texas Secretary of State. This is done through a Certificate of Formation. To encourage the creation of new business (and new jobs), the Secretary of State has provided both PDF fill-in-the-blank forms and Microsoft Word-based forms which contain all of the statutorily required information for formation. The form must include:

  • Name, type, and purpose of the corporation
  • Period of duration
  • Registered agent and office
  • Name and address of organizer

While corporations do provide many advantages, they also have disadvantages—the biggest one being maintaining status as a corporation. This involves the performance of the following corporate formalities:

  • Maintaining a registered agent and office in Texas
  • Creating bylaws
  • Issuing stock certificates
  • Holding annual shareholders and directors meetings
  • Documenting said the annual meetings

Assuming these corporate formalities are maintained, and the corporate form is not abused, a corporation provides a powerful shield from liability for its shareholders.

Despite the protective benefits of corporations, they require many corporate formalities to maintain their corporate structure. In addition, corporations are subject to corporate income taxes (i.e. double tax). This means the profits of the company are taxed at the company level. This double taxation of corporate earnings would affect the shareholders in that if those profits are distributed to the shareholders in the form of dividends, the individual shareholders would be taxed on the dividends.

It is strongly advised that anyone considering filing as a corporation carefully review all tax and law implications with an attorney. The tax and law requirements could greatly impact the future success of the company.

Managing a Corporation in Texas

A corporation is managed by a board of directors which has been elected by the shareholders. A board of directors hires corporate officers (i.e. Chief Executive Officer, Chief Operating Officer, etc) to handle the day-to-day affairs of the company. In Texas, corporations must have at least one director, as well as a president and secretary. However, Texas law allows a single person to hold all three positions of director, president, and secretary.

Rights of Shareholders

In order to properly run a corporation, you must also have a detailed understanding of the rights, responsibilities, and protections you provide for shareholders. The rights of shareholders in a corporation generally come from the bylaws and shareholders agreement. The shareholders agreement is written agreement signed by all shareholders and made known to the corporation.

Key Provisions for Corporations Under the Texas BOC

There are a few important provisions the Texas Business Organizations Code (BOC) that address how corporations are to be formed and managed. These include:

  • Sec. 21.201: This section establishes that registered holders are owners of the company. A corporation considers the person registered as the owner of a share for purposes of voting, receiving distributions on the share, transferring rights, entering agreements with respect to that share, or any other shareholder action.
  • Sec. 21.201; 21.204: This section established shareholders’ statutory preemptive rights, which state that a shareholder does not have statutory preemptive rights unless otherwise stated.

Transferring Shareholders Interest

Transferring shareholders’ interest is fairly simple but very important to understand.

As representative of ownership interest, shares are relatively simple to transfer. According to Chapter 8 of the BOC, a corporation’s shares and other securities are transferable as long as they abide by the restrictions explained by the BOC and the bylaws of said corporation. A well-written shareholders agreement will provide for the transition of ownership interests through shares.

Important Differences between Corporations and LLCs

Unlike LLCs, corporations in Texas must follow certain formalities under the Texas Business Organizations Code. First, corporations must have an annual meeting of shareholders and directors. This is so even if there is only one shareholder and director in the corporation. Additionally, there must be written minutes of these meetings. Another formality is the necessity for written bylaws for the corporation. And, finally, a corporation must issue paper stock certificates reflecting all issued shares of the company.

When it comes to things you need to know before forming a corporation, this is just the tip of the iceberg. Call (281) 677-3474 to speak with a business formation attorneyin Pearland and let us help you build your business.

Why Trust Us?

  • Our boutique firm is focused on the needs of all businesses.
  • We provide legal guidance to individuals and businesses.
  • Spanish-speaking services are available for bilingual clients.
  • We accept cash, checks, and credit card payments.