How to Form an S Corporation in Texas
Complete step-by-step guide to forming a Texas corporation and electing S Corporation tax status. Learn about state filing requirements, IRS elections, and ongoing compliance.
Texas S Corporation Quick Facts
*S Corporations ARE subject to Texas franchise tax (unlike some other states)
Overview of S Corporation Formation in Texas
An S corporation is not a state entity type but rather a federal tax designation. A for-profit corporation elects to be taxed as an "S" corporation by filing an election with the Internal Revenue Service.
You must first form a regular for-profit corporation in Texas, then elect S corporation status with the IRS.
Step-by-Step S Corporation Formation Process
Form a Texas For-Profit Corporation
File a Certificate of Formation (Form 201) with the Texas Secretary of State.
Key Requirements for Certificate of Formation:
- • Corporation name: Must be unique and distinguishable in Texas records
- • Registered agent: Must maintain a registered agent with a Texas address
- • Directors: At least one director, one president, and one secretary required
- • Shares: Must specify the number and type of authorized shares
- • Number and names of initial directors
Filing Methods:
- • Online through SOSDirect
- • By mail to: Corporations Section, P.O. Box 13697, Austin, Texas 78711-3697
- • In person at: James Earl Rudder Office Building, 1019 Brazos, Austin, Texas 78701
File for S Corporation Election with the IRS
Submit Form 2553 to elect S Corporation tax status with the Internal Revenue Service.
Eligibility Requirements:
- • Be a domestic corporation
- • Have only allowable shareholders (individuals, certain trusts, and estates)
- • Have no more than 100 shareholders
- • Have only one class of stock
- • Not be an ineligible corporation
Critical Timing Requirements:
- • File Form 2553 no more than 2 months and 15 days after the beginning of the tax year
- • OR at any time during the preceding tax year
- • Late election relief available within 3 years and 75 days if you miss the deadline
Texas Franchise Tax Registration
Register with the Texas Comptroller for franchise tax obligations.
⚠️ Important: S corporations ARE subject to Texas franchise tax
Unlike some other states, Texas imposes franchise tax on S corporations.
Franchise Tax Requirements:
- • Annual franchise tax report due May 15
- • Tax based on entity's margin (revenue minus deductions)
- • File Form 05-102 (Public Information Report) annually
- • Maintain good standing to avoid forfeiture
Tax Calculation Methods:
- • Total revenue minus cost of goods sold, OR
- • Total revenue minus compensation, OR
- • Total revenue times 70%, OR
- • Total revenue minus $1 million
Hold Organization Meeting
After filing takes effect, hold an organization meeting as required by Texas law.
Meeting Requirements:
- • Called by majority of initial board of directors
- • Adopt corporate bylaws
- • Elect corporate officers
- • Transact other necessary business
- • Document all decisions in corporate records
Additional Setup Tasks:
- • Obtain EIN from the IRS
- • Open corporate bank account
- • Issue stock certificates
- • Prepare shareholder agreements if needed
Ongoing Compliance Requirements
Texas State Requirements
- • Franchise Tax Report: Due May 15 annually
- • Public Information Report: Required periodically
- • Registered Agent: Maintain continuously
- • Good Standing: Keep current with all filings
- • Corporate Records: Maintain proper documentation
Federal Requirements
- • Form 1120S: Annual S Corp tax return
- • Schedule K-1: Issue to all shareholders
- • Payroll Taxes: If you have employees
- • Corporate Formalities: Board meetings, resolutions
- • S Election Maintenance: Ensure continued eligibility
S Corporation Benefits & Considerations
✅ Benefits
- • Pass-through taxation: Avoid double taxation
- • Self-employment tax savings: Only wages subject to payroll tax
- • Limited liability protection: Personal asset protection
- • Business credibility: Corporate structure enhances credibility
- • Easy ownership transfer: Stock can be sold or transferred
- • No Texas state income tax: Additional tax advantage
⚠️ Considerations
- • Texas franchise tax: Still applies to S Corps
- • Strict eligibility rules: Limited to 100 shareholders, one class of stock
- • Reasonable salary requirement: Owner-employees must receive wages
- • Corporate formalities: Board meetings, resolutions required
- • IRS scrutiny: Salary reasonableness often examined
- • Complex tax filings: Requires professional preparation
Summary of Formation Process
1. Form the Corporation
File Certificate of Formation (Form 201) with Texas Secretary of State - $300 fee
2. Obtain EIN
Apply for an Employer Identification Number from the IRS
3. File S Election
Submit Form 2553 to the IRS within the required timeframe
4. Register for Texas Taxes
Register with the Texas Comptroller for franchise tax
5. Annual Compliance
File annual franchise tax reports (due May 15) and maintain good standing
All information comes directly from the Texas Secretary of State, Texas Comptroller of Public Accounts, and IRS official websites and documents.
Need Help Forming Your Texas S Corporation?
S Corporation formation involves both state and federal requirements. Professional guidance can ensure proper setup and compliance.
Professional Formation Services
Consider professional help for S Corporation formation, tax planning, and ongoing compliance requirements.
Compare ServicesOfficial Government Resources
Texas Secretary of State
Official Certificate of Formation (Form 201) and filing portal for Texas corporations.
Internal Revenue Service
Official IRS resources for S Corporation election and tax requirements.
Texas Comptroller
Texas franchise tax information and filing requirements for corporations.
Frequently Asked Questions
What's the difference between an S Corp and LLC in Texas?
S Corps offer potential self-employment tax savings but require more formalities. LLCs provide more flexibility but all income may be subject to self-employment tax.
Do S Corporations pay Texas franchise tax?
Yes, unlike some other states, Texas imposes franchise tax on S Corporations. The tax is based on the entity's margin, not federal tax status.
When must I file the S Corporation election?
Form 2553 must be filed no more than 2 months and 15 days after the beginning of the tax year you want the election to take effect, or anytime during the preceding tax year.
Can I convert my existing LLC to an S Corporation?
LLCs can elect to be taxed as S Corporations by filing Form 2553, but you don't need to form a new corporation. Consult a tax professional for guidance.
What happens if I miss the S election deadline?
The IRS provides late election relief if you file within 3 years and 75 days of the intended effective date and can show reasonable cause for the delay.
Do I need to pay myself a salary as an S Corp owner?
Yes, if you're actively involved in the business, you must pay yourself reasonable compensation subject to payroll taxes before taking distributions.