How to Start an S Corp in Texas

Factors to Consider Before Starting an S Corp in Texas

Before forming an S corp, you have to consider the following factors:

• Is an S corporation the best strategy for your business?
• S corporation restrictions
• Are S corp tax advantages right for you?

Is an S Corporation the Best Strategy for Your Business?

For help with choosing the right structure for your business, visit our Choosing a Business Structure guide.

S Corporation Restrictions

S corps have several restrictions, such as being limited to one class of stock and 100 shareholders. Read our What Is an S Corporation guide for full details.

Are S Corp Tax Advantages Right for You?

An S corporation is a tax designation that can be elected by a limited liability company (LLC) or corporation. With an S corp, business owners are considered employees of the company and must receive a reasonable salary. Since all S corps technically have employees, the s corp must run payroll. 

In order to benefit from a Texas S corp tax designation, your business needs to make enough money to offset payroll expenses. Furthermore, S corps are beneficial for business owners who take large distributions in addition to their salary.

To learn more about the tax advantages of an S corp, read our LLC vs. S corp guide and take a look at our S Corp tax calculator.

How to Form a Texas S Corp

There are two main ways to start an S corp:

• By forming an LLC and electing S corp tax status from the IRS when you request your employee identification number (EIN)
• By forming a corporation and electing S corp status from the IRS

We recommend forming an LLC because it’s simpler and more cost-effective.

Want to form an S corp elsewhere? Check out our other How to Start an S Corp guides to learn more.

Recommended: If you have an existing LLC, visit our How to Convert an LLC to S Corp guide.

Steps for Forming an LLC and Electing S Corp Status in Texas

Starting a Texas LLC and electing S corp tax status is easy. You can use our guides to start an LLC with the S corp status yourself, or you can hire a service provider like Northwest to guide you through this process.

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

Step 1: Name Your LLC

Choosing a company name is the first and most important step in starting your LLC in Texas.

Be sure to choose a name that complies with Texas naming requirements and is easily searchable by potential clients.

1. Follow the naming guidelines for a Texas LLC:

• Your name must include the phrase “limited liability company,” or one of its abbreviations or words: “LLC, L.L.C., Limited, Ltd., Company or Co.”
• Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
• Restricted words (e.g., Bank, Attorney, University) may require additional paperwork and a licensed individual, such as a doctor or lawyer, to be part of your LLC.
• For a list of naming rules in Texas, you can read the Texas Secretary of State’s guidelines.

You can also read the Texas state statute about LLC naming guidelines for more information.

2. Is the name available in Texas? You can use the taxable entity search on the Texas Comptroller of Public Accounts website to see if your desired LLC name is available.

3. Is the URL available? We recommend checking to see if your business name is available as a web domain. Even if you don’t plan to create a business website today, you may want to buy the URL in order to prevent others from acquiring it.

Step 2: Choose Your Texas Registered Agent

You must elect a registered agent for your Texas LLC.

An LLC registered agent will accept legal documents and tax notices on your LLC’s behalf. You will list your registered agent when you file your LLC’s Certificate of Formation.

Many business owners choose to hire a registered agent service. Many of these services will form your LLC for a small fee and include the first year of registered agent services for free.

Texas Registered Agent Consent to Appointment

Registered agents in Texas must consent to their appointment in written or electronic form. The statement of consent should include:

• The name of your LLC
• An express statement that the person designated consents to serve as the LLC’s registered agent
• The name of the person designated as registered agent
• The signature of the registered agent
• The date of execution

The consent statement doesn’t have to be filed with the Secretary of State. For in-depth information on this requirement, as well as a fillable consent form, view the Acceptance of Consent Form 401-A.

Step 3: File the Texas LLC Certificate of Formation

The Texas Certificate of Formation is used to officially register an LLC.

File Your Texas Certificate of Formation

OPTION 1: File Online With Texas SOSDirect

File Online

– OR –

OPTION 2: File Form 205 by Mail, by Fax, or in Person

Download Form

State Filing Cost: $300, payable to the Secretary of State (Nonrefundable)

Mailing Address:
Secretary of State
P.O. Box 13697
Austin, TX 78711

Office Address:
James Earl Rudder Office Building
1019 Brazos
Austin, TX 78701

Fax: (512) 463-5709

Step 4: Create an LLC Operating Agreement

An LLC operating agreement, known in Texas as a company agreement, is a legal document that outlines the ownership and member duties of your LLC.

For more information, read our Texas LLC Operating Agreement guide.

Our operating agreement tool is a free resource for business owners.

Step 5: Get an EIN and Complete Form 2553 on the IRS Website

An EIN is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business.

EINs are free when you apply directly with the IRS.

Elect S Corp Tax Status
During the online EIN application, the IRS will provide a link to Form 2553, the Election By a Small Business form.

Visit our Form 2553 Instructions guide for detailed help with completing the form.

This is the form to elect S corp tax status for your LLC:

Keep Your Texas S Corp Compliant

After forming your Texas S corp, it’s important to adhere to state regulations to ensure your business remains in good standing and fully complies with the law.

File the BOI Report

The federal government requires all LLCs and corporations to file a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN). This report is crucial for maintaining up-to-date federal records on who owns or controls your business.

You can submit the BOI report through the FinCEN website.

Open a Business Bank Account

Keeping your business finances separate from your personal finances is essential for protecting your LLC’s liability shield. Opening a business bank account is a key step in maintaining clear and compliant financial records.

Explore the top options for your business in our guide on the Best Banks for Small Business.

Obtain Required Business Licenses and Permits

Texas businesses must secure the appropriate state and local licenses or permits to operate legally. The exact licenses needed will depend on your business’s industry and location within the state.

To determine which licenses apply to your business, visit our Texas Business License guide.

Submit Your Annual Franchise Tax Report

In Texas, S corps must file an Annual Franchise Tax Report with the Texas Comptroller of Public Accounts. This report is due every year by May 15 and includes the Public Information Report (PIR). Failing to file can result in penalties or forfeiture of your business’s legal status.

You can file your report online through the Texas Comptroller’s eSystems portal.

Understand Texas S Corp Tax Obligations

Texas doesn’t impose a state income tax, which can be beneficial for S corporations. However, your business will still need to comply with federal tax obligations and the state’s franchise tax requirements.

For detailed information on Texas tax responsibilities, visit the Texas Comptroller’s Franchise Tax page.

Fulfill Texas Sales Tax Requirements

Texas has a statewide sales tax, and local jurisdictions may impose additional sales taxes. If your S corp sells taxable goods or services, you must register for sales tax and comply with state and local tax laws.

For more information on Texas sales taxes, visit the Texas Comptroller’s Sales and Use Tax page.