Business Formation Documents: A Complete Guide for Small Business Owners

Introduction

Key Things to Know

1. 1

   Your choice of business structure (sole proprietorship, partnership, LLC, corporation) determines which formation documents you need and affects taxation, liability, and operational requirements.

2. 2

   MWBEs should prepare additional documentation for certification programs that can provide access to special contracting opportunities and resources.

3. 3

   Formation documents should anticipate future growth and include provisions for adding investors, changing ownership, or expanding operations.

4. 4

   State requirements vary significantly, so research your specific state's filing procedures, fees, and ongoing compliance obligations.

5. 5

   Working with a business attorney to draft or review your formation documents is an investment that can prevent costly legal issues in the future.

6. 6

   Proper formation documents not only establish your business legally but also create the foundation for business relationships, financing opportunities, and eventual business sale or succession.

7. 7

   Keep your formation documents updated as your business grows and changes to ensure they continue to serve your needs and comply with current laws.

Texas Requirements for Business Formation Documents

• Entity Type Selection (Texas Business Organizations Code § 1.002)

  Specification of the business entity type (corporation, LLC, partnership, etc.) in accordance with Texas law, which determines taxation, liability, and governance structure.

• Certificate of Formation (Texas Business Organizations Code § 3.001-3.005)

  Filing requirements for the Certificate of Formation (Articles of Organization/Incorporation) with the Texas Secretary of State, including required information such as business name, registered agent, and business purpose.

• Business Name Compliance (Texas Business Organizations Code § 5.053-5.063)

  Requirements for business name selection, including name availability, distinguishability from existing entities, and required designators (LLC, Inc., etc.).

• Registered Agent Designation (Texas Business Organizations Code § 5.201-5.207)

  Requirement to maintain a registered agent with a physical address in Texas who can receive legal documents and service of process on behalf of the business.

• Company Bylaws/Operating Agreement (Texas Business Organizations Code § 101.052 (for LLCs); § 21.057 (for Corporations))

  Internal governance document outlining management structure, voting rights, profit distribution, and operational procedures specific to the business entity.

• Ownership Structure (Texas Business Organizations Code § 21.151-21.173 (for Corporations); § 101.101-101.107 (for LLCs))

  Documentation of ownership interests, including stock certificates for corporations or membership certificates for LLCs, with appropriate restrictions and transfer provisions.

• Tax Election Provisions (Internal Revenue Code § 1361-1379; Texas Tax Code § 171.001)

  Provisions addressing federal tax classification elections (S-Corporation status, partnership taxation, etc.) and compliance with Texas franchise tax requirements.

• Employer Identification Number (Internal Revenue Code § 6109; 26 C.F.R. § 301.6109-1)

  Requirement to obtain an Employer Identification Number (EIN) from the IRS for tax reporting and employee management purposes.

• Securities Compliance (Securities Act of 1933; Texas Securities Act (Texas Government Code § 4001.001))

  Provisions ensuring compliance with federal and Texas securities laws for the issuance of ownership interests, including applicable exemptions from registration.

• Business Permits and Licenses (Texas Occupations Code (varies by industry); Local ordinances)

  Requirements to obtain necessary permits and licenses specific to the business type and industry as required by Texas state and local authorities.

• Sales Tax Permit (Texas Tax Code § 151.201-151.207)

  Requirement to register for a sales tax permit with the Texas Comptroller of Public Accounts if the business will sell taxable goods or services.

• Employment Laws Compliance (Fair Labor Standards Act; Texas Labor Code § 21.001)

  Provisions ensuring compliance with federal and Texas employment laws, including worker classification, minimum wage, overtime, and anti-discrimination requirements.

• Indemnification Provisions (Texas Business Organizations Code § 8.101-8.105)

  Clauses outlining the company's obligation to indemnify officers, directors, managers, or members against certain liabilities incurred in their official capacity.

• Dispute Resolution (Texas Civil Practice and Remedies Code § 154.001; Texas Business Organizations Code § 101.054 (for LLCs))

  Provisions establishing procedures for resolving internal disputes, including mediation, arbitration, or litigation procedures in compliance with Texas law.

• Business Records Requirements (Texas Business Organizations Code § 3.151-3.153)

  Provisions for maintaining required business records, including financial statements, meeting minutes, and ownership records as required by Texas law.

• Dissolution Procedures (Texas Business Organizations Code § 11.051-11.102)

  Procedures for voluntary dissolution of the business entity, including required filings with the Texas Secretary of State and distribution of assets.

• Foreign Qualification (Texas Business Organizations Code § 9.001-9.007)

  Requirements for registering as a foreign entity if the business was formed outside of Texas but conducts business within the state.

• Franchise Tax Compliance (Texas Tax Code § 171.001-171.1016)

  Provisions addressing compliance with Texas franchise tax requirements, including annual reporting and payment obligations.

• Privacy Policy Requirements (Texas Business & Commerce Code § 521.001; California Consumer Privacy Act (if applicable to Texas businesses with California customers))

  Provisions addressing data privacy requirements for businesses that collect personal information, in compliance with applicable federal and state laws.

• Intellectual Property Protection (Lanham Act; Copyright Act; Texas Uniform Trade Secrets Act (Texas Civil Practice and Remedies Code § 134A.001))

  Provisions addressing ownership and protection of business intellectual property, including trademarks, copyrights, and trade secrets.