7 Steps to Start an S-Corp in Texas

July 14, 2021
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Texas offers several attractive reasons to start businesses. Some of the most important include a large workforce, low taxes, and a robust economy.

While starting a business in Texas is a good idea, you’ll want to know a few things before starting an S-Corp in Texas. There are requirements the state has which differ from other states. Here are seven steps to form an S-Corp in Texas.

What are the benefits of an S Corporation?

An S-Corp offers several benefits which may be right for you. Some benefits of an S Corporation are: 

  • S-Corp owners can lower taxes owed by characterizing income as dividends or salary. 
  • Electing a corporation as an S Corporation can make the corporation qualify for tax deductions. 
  • Shareholders won’t have to experience double taxation, paying taxes for both entity income and individual income. 
  • Shareholders can earn income as salaries. They can also receive dividends that may be tax-free. 

S Corporation Requirements in Texas

An S Corporation has federal requirements set by the IRS. The S Corporation must meet the federal requirements before starting your S Corporation in Texas. To become an S Corporation, your corporation must:

  • Be a domestic corporation 
  • Have no more than 100 shareholders
  • Have only one class of stock
  • Have only allowable shareholders, which may be certain trusts, estates, and individuals. It may not be corporations, non-resident shareholders, or partnerships.
  • Not be an ineligible corporation.

To file an S Corporation in Texas, you’ll first form a corporation with the Texas Secretary of State. After forming your corporation, you’ll then elect to be taxed as an S Corporation. 

To become an S Corporation, you won’t work with the state of Texas. Instead, you’ll work with the IRS to change your corporation to an S Corporation.

How to Start an S-Corp in Texas

There are seven steps you’ll complete to start an S-Corp in Texas.

Step 1: Check Name Availability

The first step to starting an S-Corp in Texas is to check your business name availability. Your business entity’s name must be unique. One of the best resources to check if your business name is available is to use the Texas Secretary of State’s SOS Direct Database.

If your business name is available, you have the option to reserve it online. Texas offers a name reservation fee for 120 days, or name renewal, for $40.

Step 2: Choose a Business Name

Next, you’ll choose a business name for your S-Corp. This step is essential because how you’ll choose your business name in Texas differs from other states. 

Finding a unique brand name and (normal-looking) domain to go with it can be a bit of a time-sink for new business owners. This free tool from Business Name Zone generates name and domain combos for you based on your input – and it only takes a few minutes.

After choosing your business name, you’ll complete an application for registration to use your business name. You’ll provide your business name on Form 501, Application for Reservation or Renewal of Reservation of an Entity Name, and submit it with additional information about your S-Corp. 

You have the option of completing Form 501 online. 

Step 3: Registered Agent

Third, you’ll need a registered agent to start an S-Corp. In the state of Texas, the registered agent can be a corporation operating within Texas, or: 

  • An individual resident of Texas
  • Limited liability company (LLC)
  • Limited partnership
  • Partnership
  • Other legal entities organized under Texas laws

Texas also requires registered offices, where a registered agent can be available during business hours. The registered office will need to be within the state of Texas, but it can also be the same address as where your S Corp will conduct business. The Secretary of State will send mail to this address for correspondence.

Step 4: Complete Form 201

The fourth step to start a S-Corp in Texas is to complete Form 201. This form is also known as the certificate of formation. To complete it, you’ll need: 

  • Business name
  • Business address
  • Name 

After completing Form 201, you’ll need to submit it to the Texas Secretary of State. You can submit Form 201 in several ways, by fax, hand delivery, or by mail. There’s a fee of $300 to complete Form 201. 

Step 5: Bylaws and Regulations

One of the last steps to starting a S Corp in Texas is to organize your S Corp bylaws and regulations. You’ll create these bylaws with shareholders, which will allow you to determine:

  • Compensation and duties for company officers
  • How your S-Corp will choose its directors
  • How long the directors will serve 

After creating your bylaws and regulations with your S Corp, you’ll want to keep them where you’ll operate your business. There’s no requirement to submit your S Corp bylaws to the Secretary of State. 

Step 6: Obtain EIN

One of the last steps to starting an S-Corp in Texas is to get your EIN. You can obtain your EIN by completing Form SS-4. 

There are multiple options to obtain your EIN: you can apply by fax, by mail, or online. There are differences in how fast you’ll receive your EIN. 

If you apply by fax and you also provide your fax number, you’ll receive your EIN within four business days. If you apply by mail, you’ll receive an EIN within four weeks.

The fastest way to receive your EIN is online, because you’ll receive your EIN immediately. No matter which option you choose, there’s no cost to obtain an EIN.

Step 7: File Form 2553

The last step of forming your S Corporation in Texas is to file Form 2253. This form will allow your corporation to elect to be an S Corporation. To complete Form 2553, you’ll need: 

  • The address and name business address
  • The date of incorporation
  • Your company’s EIN
  • Your company’s state of incorporation. 

You’ll also need to include the address, name, and signature of each shareholder, with the signature and title of a company officer. After completing Form 2553, you can fax or mail your completed Form 2553 to the IRS. 

Form Your S-Corp the Right Way

Starting an S-Corp in Texas is a wise decision. The benefits of an S-Corp and the business-friendly nature of Texas will go a long way in contributing to the future success of your business. 

When it’s time to start your S-Corp in Texas, you’ll want to make sure that it’s a stress-free experience. Work with the professionals at 1-800Accountant to start your S-Corp the right way.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.