Corporate Responsibilities in Texas

Article by Joanne Cassidy

One of the principal advantages of conducting business in the corporate form is to limit or reduce personal liability for corporate debts and obligations. Once a person files a Certificate of Formation with the office of the Secretary of State of Texas, the company is officially created. However, in order to insure the continued existence of the separate corporate entity and avoid personal liability for corporate acts, the corporation’s shareholders and directors should be aware of certain duties and actions required to preserve and maintain the corporation’s separate entity status.

You can become liable for a corporation’s debts by voluntarily assuming a debt. For instance, you may sign a personal guaranty for a business debt. You can also become liable for the corporation’s debts by implied actions or negligent conduct.

If you disregard certain corporate formalities or commingle your personal interests with the corporation’s interests, you can open the door for an adverse party to “pierce the corporate veil” and render you personally liable for the corporation’s obligations. The following are some suggestions about what you can do to maintain your corporation’s separate identity and protect yourself from corporate liabilities.

1. Review the Certificate of Formation and Bylaws

First, read and periodically review the Certificate of Formation and Bylaws. These are the corporation’s governing documents and they describe the company’s “rules”. If a rule no longer fits the way the company actually operates, change the rule, but be sure to do so according to the rules governing change.

2. Business Address, Directors and Officers of the Company

Keep current. If you change the business address of the company and that address is also the registered address, you must file a change of registered address with the office of the Secretary of State of Texas. In addition, public information filings should always correctly name the directors and officers of the company.

3. Franchise Tax on Corporations

The State imposes a franchise tax on corporations for the privilege of doing business in this state. If the corporation fails to timely file its annual franchise report or pay its tax, it may be subject to penalties and interest. In addition, continued failure to file can result in the corporation’s forfeiture of its corporate charter.

4. Assumed Name Certificate

You must obtain an Assumed Name Certificate if your corporation will be known as, or transact business under, any name other than the exact corporate name as stated on the Certificate of Formation.

5. Document Payments

Document payments to owners, officers and directors by preparing corporate resolutions authorizing such payments.

6. Shareholders’ and Directors’ Meeting

You should hold annual shareholders’ and directors’ meeting or prepare annual written consents to document the shareholders’ election of directors and the directors’ election of officers.

7. Exact Corporate Name

You should at all times do business under the corporate name exactly as specified in the Certificate of Formation, except when an appropriate assumed name certificate has been filed. Letterhead, invoices, business cards and stationery should reflect the full, correct corporate name.

8. Make It Clear That You Are Acting as an Agent of the Corporation

Whenever you sign on behalf of or for the corporation, you should add your title next to the signature so that it will be clear that you are acting as an agent of the corporation rather than in your own individual capacity. For instance, if you sign a contract with just your name and do not state your relationship to the corporation next to your name in the contract, you may be held personally liable for the contract. A correct signature would be:

XYZ Corporation
By: ________________________
John Doe, Vice President

9. Personal and Business Funds

Never commingle personal and business funds. If you loan money to the corporation, document the loan in the records of the company. Similarly, if the company repays a loan to you, document the fact that the payment is a loan repayment.

10. Corporate Transactions Should Be Approved by the Board of Directors

All important corporate transactions should be approved by the board of directors and adopted by the corporation pursuant to a properly prepared corporate resolution which is inserted into the corporate minute or record book. Examples of items which should be approved by the board of directors include such things as employment contracts, buy-sell agreements, profit sharing and pension plans, loans, leases, major purchases, and other important transactions that could affect the capital structure or finances of the corporation.

11. Shareholder or Buy-sell Agreement

The corporation and its shareholders may agree to impose restrictions on the transfer of shares of stock. If so, a shareholder or buy-sell agreement should be prepared and approved by resolution of the board of directors.

12. Acknowledge the Roles of Directors and Officers

Directors control the policy of the corporation and delegate the implementation of the policy to the officers. Officers are responsible for implementation of corporate policy and day-to-day management of the corporation. The directors have the absolute right to inspect all corporate books, records, and documents at any time. If the directors do not exercise this right, they may be subject to shareholder liability if the corporation or its creditors suffer a loss by reason of failure to exercise due diligence in such matters.

13. Removing Directors and Officers

Unless otherwise provided in the company’s governing documents, shareholders can remove the directors and directors can remove the officers.

14. Business Team of Professionals

Develop a business team of professionals who know the company. When in doubt about payment of taxes and other financial matters, consult the company’s CPA. When in doubt about the company’s legal matters, consult the company’s lawyer.

Please note that this article gives only a partial listing of some of the rights, responsibilities, and duties of corporate practice and is not intended to provide a summary of all issues that may arise. Throughout the life of the company, you will undoubtedly have specific questions and those questions should be addressed by your company lawyer.