Establishing a corporation is a significant step for any business owner. Corporations offer unique advantages, including limited liability protection, access to capital, and the potential for long-term growth and stability. At Capstone Legal Strategies, we help Houston businesses select the right structure, navigate formation requirements, and develop the legal frameworks needed to support sustainable operations.

Our firm focuses on business planning and transactional support, rather than litigation, allowing us to provide practical and proactive legal guidance at every stage of your corporation’s development.

Key Features of a Corporation

A corporation is a separate legal entity from its owners (shareholders). This structure provides:

  • Limited liability protection: Shareholders are generally not personally liable for corporate debts and obligations.
  • Perpetual existence: Corporations continue to exist even if ownership changes.
  • Capital-raising opportunities: Corporations can issue stock to investors, making them an attractive option for growth-oriented businesses.
  • Formal governance structure: Corporations are managed by a board of directors and officers, which can provide stability and clear decision-making processes.

Due to these characteristics, corporations are often selected by businesses seeking outside investment, preparing for expansion, or operating in industries where a formal structure enhances credibility.

Types of Corporations

When forming a corporation in Texas, businesses typically consider the following options:

C Corporations

  • Taxed separately from their owners.
  • Can issue multiple classes of stock.
  • Attractive to investors and venture capital.
  • Subject to corporate income tax at the federal and state level (Texas does not impose a corporate income tax, but the franchise tax applies).

S Corporations

  • A tax election that allows income, deductions, and credits to “pass through” to shareholders, avoiding double taxation.
  • Restricted to 100 shareholders and certain ownership requirements.
  • Ideal for smaller businesses seeking a corporate structure without double taxation.

Professional Corporations (PCs)

  • Designed for licensed professionals, including doctors, lawyers, and accountants.
  • Subject to special rules regarding ownership and liability.

Choosing the right type depends on your business’s goals, ownership structure, and tax strategy.

Legal Considerations for Corporations

Forming and maintaining a corporation involves more formalities than other business entities. Key considerations include:

  • Certificate of Formation: Filed with the Texas Secretary of State to legally form the corporation.
  • Corporate Bylaws: Governing document outlining management structure, meeting requirements, voting rights, and other operational rules.
  • Board of Directors and Officers: Appointing initial leadership and documenting roles and responsibilities.
  • Shareholder Agreements: Defining ownership rights, restrictions on stock transfers, and procedures for resolving disputes.
  • Compliance and Recordkeeping: Maintaining corporate records, holding regular meetings, and filing Public Information Reports as required.

Failure to observe corporate formalities can jeopardize liability protection; therefore, it’s essential to establish a robust governance framework from the outset.

Tax Implications for Corporations in Texas

Texas corporations face unique tax considerations. While Texas does not impose a corporate income tax, most entities are subject to the Texas Franchise Tax, calculated based on taxable margin. Additionally:

  • C Corporations pay federal corporate income tax on profits. Shareholders are also taxed on dividends, which can lead to double taxation.
  • S Corporations avoid double taxation by passing income through to shareholders, who pay taxes on their individual returns.
  • Corporations may be eligible for certain deductions, credits, or exemptions depending on their industry and structure.

Proper tax planning at the formation stage can help minimize liability and avoid unexpected issues later.

Steps to Forming a Corporation in Houston

  • Choose a Name: Must comply with Texas naming rules and be distinguishable from existing entities.
  • File a Certificate of Formation: Establish the entity with the Secretary of State.
  • Appoint a Registered Agent: Required for receiving legal and tax documents.
  • Prepare Corporate Bylaws: Define operational structure and governance rules.
  • Hold Initial Organizational Meeting: Appoint directors, adopt bylaws, and issue shares.
  • Obtain an EIN and Tax Accounts: Register with the IRS and Texas Comptroller for necessary tax obligations.
  • Draft Key Agreements: Including shareholder agreements and other foundational contracts.
  • Stay Compliant: Maintain Public Information Reports, tax filings, and records to keep the corporation in good standing.

Ongoing Compliance and Governance

Unlike sole proprietorships or LLCs, corporations must follow strict ongoing compliance obligations. These include:

  • Holding regular board and shareholder meetings.
  • Keeping accurate minutes and resolutions.
  • Filing required state reports.
  • Updating bylaws and shareholder agreements as the business evolves.

Capstone Legal Strategies helps businesses maintain compliance, allowing owners to focus on growth rather than administrative burdens.

Capital-Raising Activities for Corporations

One of the primary advantages of incorporating is the ability to raise capital through the issuance of stock or other equity instruments. Corporations can attract investors by offering common or preferred shares, convertible notes, or stock options as part of employee incentive plans. For established companies, private placements, venture capital, or angel investment rounds may be appropriate, while larger corporations may explore public offerings or Regulation D exemptions under federal securities laws. Before offering or selling securities, it is essential to comply with both federal and state “blue sky” regulations, including proper disclosures and filings. Capstone Legal Strategies assists clients in structuring equity and debt offerings, preparing subscription agreements, and navigating applicable securities exemptions to ensure compliance while facilitating efficient access to growth capital.

Work with Capstone Legal Strategies for Strategic Entity Formation

Forming a corporation offers Houston business owners powerful advantages, but it requires careful planning, attention to detail, and ongoing compliance. Capstone Legal Strategies provides strategic guidance through every step of the incorporation process, from entity selection and tax planning to drafting governance documents and maintaining compliance.

Whether you’re launching a new venture or restructuring an existing business, we can help you build a solid legal foundation tailored to your goals. Contact Capstone Legal Strategies today.