Corporations

Statutory authority for general incorporation of commercial businesses (earlier, each corporation was authorized only by a separate legislative act) dates to 1871 in Texas. This bill did not include an enacting clause, and so it was not until 1874 legislation that a valid general incorporation statute existed. The legislature through the 1920’s would regularly add or delete specific industries that could exercise the corporate privilege. Until the modern era, at the end of a corporation’s existence, all the shareholders were personally liable for unpaid debts. In 1955, the Texas version of the Model Business Corporation Act was adopted. Substantial changes were made in 1961 to modernize it, and in the legislative sessions from 1987 through 1993, when the legislative agenda was to protect shareholders and directors from personal liability which the courts had expanded as part of common law. Unfortunately, attorneys who file pleadings and the courts which rule on them, still all too often ignore the statute.

The present corporation law is different depending on the date of organization or election. A corporation formed after January 1, 2006 is subject to the corporation law of the Texas Business Organizations Code. Corporations formed before January 1, 2006 remain subject to the Texas Business Corporation Act, but may elect to become subject to the new Code. The Code becomes the law applicable to all corporations, whenever formed, on January 1, 2010. In general, there is little substantive change between the old and new, but there might be on a specific issue of relevance to your business.

Corporations offer fairly dependable limited liability protection to all owners without the governance complexities that apply to limited partnerships; but limited liability companies offer at least as much protection as corporations, with much simpler governance procedures.

Corporations may be federally taxed only under Subchapters C or S; they are subject to the Texas Franchise tax.

The proper use for the corporate form in Texas is almost exclusively as a public company.