How to Start an S Corp in Texas

The process of forming a Tax corporation doesn’t need to be complicated. This guide will help you form a corporation in Texas in a straightforward manner.

If you are forming a limited liability company (LLC) or a corporation in Texas, you will need to file a Certificate of Formation or Articles of Incorporation, respectively, and then elect S corporation status from the IRS Form 2553 once you apply for your EIN.

S corporations are IRS tax classifications (Subchapter S), not business structures. Business owners can reduce their tax burden by adopting the S corp status.

There are five basic steps to start an LLC and elect S corp status:

Step 1: Name Your LLC

Step 2: Choose a Registered Agent

Step 3: File the Certificate of Formation

Step 4: Create an Operating Agreement

Step 5: Get an EIN and File Form 2553 to Elect S Corp Tax Status

What are the benefits of an S Corporation?

• The liability protection provided by the Texas corporations protects your personal assets and finances from those of your business.
• You can save money by forming a Texas S Corporation if you want to pay less self-employment tax.
• There are several ways in which you can create, transfer, and sell stock in Texas S Corporations.
• A Texas C Corporation offers more options for creating, buying, selling, and transferring stock (including publicly)

Ongoing Compliance

• Annual Reports: File annual reports with the Texas Secretary of State.
• Franchise Taxes: Pay Texas franchise taxes.
• Corporate Records: Maintain updated corporate records, including meeting minutes and stock ledger.
• Compliance: Adhere to state and federal regulations regarding employment, taxes, and other corporate obligations.

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What are the S Corporation Requirements

The Internal Revenue Service (IRS) imposes restrictions on what businesses can file as S corp. In order to qualify for S corporation status, an entity must meet the following requirements:

• Be a domestic corporation or LLC
• Have only one class of stock
• Have no more than 100 shareholders or members (“shareholders” is the term for owners of a corporation, while “members” is the term for owners of an LLC)
• Not be an ineligible corporation, such as certain financial institutions, insurance companies, and domestic international sales corporations
• Have only allowable shareholders or members, which includes individuals, certain trusts, and estates. The shareholders may not be partnerships, corporations, or non-resident aliens. A nonresident alien is an alien who has not passed the green card test or the substantial presence test.