How to Form an S Corporation in Texas

In Texas, you may incorporate a S corporation (S corp) by submitting the Certificate of Formation or Articles of Incorporation, respectively, and then select S corp status from the IRS Form 2553 when you apply for your EIN.

An S corporation is a tax categorization (Subchapter S) rather than a company structure. The S corp classification is used to lower a company’s tax burden.

In our How to Start a S Corp in Texas tutorial, we’ll walk you through the steps.

Considerations Before Forming a S Corp

You must examine the following things before founding a S corporation:

Is a S corporation the best option for your company?
S corporation limitations
Why is an LLC the ideal structure for the S corporation tax status?
Are the tax benefits of a S corporation good for you?

Is a S Corporation the Best Business Structure for You?

Restrictions on S Corporations

S corporations are restricted to one class of stock and 100 stockholders, among other things. For more information, see our What Is a S Corporation? guide.

Why is an LLC the best structure for S Corporation tax status?

As entrepreneurs, we feel that incorporating a S corporation via an LLC is the best option since the benefits of founding a corporation are offset by S corp limitations. LLCs are also less difficult to manage than corporations.

Are S Corporation Tax Benefits Right for You?

You must determine if the S corp tax status is preferable to the default LLC tax status for your company. Read our LLC vs. S corp tutorial to fully grasp the tax benefits of a S corp.

How to Form a S Corporation

There are two major methods to form a S corporation:

When requesting your employee identification number, organize an LLC and obtain S corp tax status from the IRS (EIN)
By creating a company and applying to the IRS for S corp status

We do not advocate forming a company with the S corp tax status since it undermines all of the advantages of forming a corporation.

Forming an LLC and Choosing S Corp Status in Texas

To form an LLC and elect S corp status, follow these five simple steps:

Step 1: Give Your LLC a Name

Step 2: Select a Registered Agent.

Step 3: Submit your Certificate of Formation.

Create an Operating Agreement in Step 4

Step 5: Obtain an EIN and submit Form 2553 to elect S Corporation tax status.

Step 1: Give Your LLC a Name

The first and most significant step in forming an LLC in Texas is deciding on a name.

Make certain that the name you chose conforms with Texas naming rules and is readily searched by prospective customers.

1. Follow the Texas LLC naming guidelines:

Your firm’s name must include the term “limited liability company” or one of its acronyms or words: “LLC, L.L.C., Limited, Ltd., Company or Co.”
Your LLC’s name cannot include terms that may be confused with a government organization (FBI, Treasury, State Department, etc.).
Restricted terms (for example, bank, attorney, university) may need extra documentation and the participation of a licensed professional, such as a doctor or lawyer, in your LLC.

2. Does the name exist in Texas? To determine whether your selected LLC name is available, utilize the taxable entity search on the Texas Comptroller of Public Accounts website.

3. Is the URL accessible?

We suggest that you check to see whether your company’s name is accessible as a web domain. Even if you don’t intend to construct a company website right away, you may want to purchase the URL to prevent others from gaining it.

Step 2: Select a Texas Registered Agent

Your Texas LLC must have a registered agent.

A registered agent for your LLC will accept legal papers and tax notifications on your behalf. When you submit your LLC’s Certificate of Formation, you will name your registered agent.

Many company owners opt to use the services of a registered agent. Many of these firms will incorporate your LLC for a modest price and provide free registered agent services for the first year.

Consent to Appointment of a Texas Registered Agent

In Texas, registered agents must provide written or electronic agreement to their appointment. The following information should be included in the consent statement:

Your company’s name
An explicit declaration that the person chosen agrees to act as the LLC’s registered agent.
The person chosen as the registered agent’s name
The registered agent’s signature
The execution date

The consent statement is not required to be sent to the Secretary of State. View the Acceptance of Consent Form 401-A for more information on this requirement, as well as a fillable consent form

Step 3: Fill out the Texas LLC Certificate of Formation form.

The Texas Certificate of Formation is used to properly establish a limited liability company (LLC).

Step 4: Draft an Operating Agreement for your LLC.

An LLC operating agreement, also known as a business agreement in Texas, is a legal document that details the ownership and member responsibilities of your LLC.

Step 5: Apply for an EIN and fill out Form 2553 on the IRS website.

An EIN is a number assigned by the US Internal Revenue Service (IRS) to companies in order to identify and tax them. It is basically a business’s Social Security number.

When you apply directly with the IRS, EINs are free.

Select S Corporation Tax Status
The IRS will give a link to Form 2553, the Election by a Small Business form, during the online EIN application process.