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
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.
- 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 an attorney in Houston and let us help you build your business.