How to Form a Small Business in Texas
The hardest part about starting a small business is sometimes simply making the decision to take the plunge. Once you’ve made that, the rest is follow through, although having a well-planned roadmap makes all of the difference between a smooth rollout and one peppered by hiccups that can cause delay, frustration, and wasted expense. If you have been thinking of finally starting your own business here in Texas, the attorneys at Mejias Lindsay PLLC are available to walk you through the process step-by-step and have the experience necessary to get your business off on the right track, right from the start. If you’re looking for an overview of what the process entails, and wondering about the steps involved, this post will walk you through a high level overview of forming a legal entity in our state.
Picking an Entity Type
The first decision you’ll make is to choose what type of entity to form. The most popular entity formation choice these days is a limited liability company (LLC) because of the flexibility it provides. LLCs combine the management flexibility of partnerships with the limited liability protection of corporations. However, LLCs are not the choice for everyone. For example, if you plan to offer preferred stock as a way to attract investment in your company, an LLC is not the entity for you, and your situation likely calls for a corporation. In certain other situations it would be more beneficial to form a limited liability partnership. Understanding the benefits and constraints of the various entity types can be confusing, but our attorneys can explain how the differences affect your business plan and, together with your CPA, will set you on the course that makes the most sense for your business.
Once you have decided on the form of entity to use, you’ll need to name it. The Texas Secretary of State imposes certain restrictions on entity names in Texas, which cannot be the same as or too similar to existing business names. The only way to find out if the name you want is available is to run name searches, but the attorneys at Mejias Lindsay PLLC have got you covered. As part of our formation packages, we will verify availability of your preferred name and alternatives ahead of time so that you avoid a rejected filing based on unavailability. This saves you time and money.
Filing with the Texas Secretary of State
Once you have an entity type chosen and have confirmed the availability of your preferred name, it’s time to file for incorporation using the appropriate forms from the Texas Secretary of State (SOS). In most cases, our attorneys utilize the SOS online filing system to securely and efficiently process your formation. However, did you know that some business owners can save significantly on their filing fees? Since January of 2016, qualified veterans in Texas are eligible for a complete waiver of filing fees for their entity if the entity will be a 100% veteran-owned business. The process for formation is a bit more complicated and cannot be done online, but our attorneys can save you up to $750 in filing fees plus a waiver of Texas Franchise Taxes for the first five years of your business’ existence by incorporating your business under this process.
Importance of Operating Agreements
Some entities require agreements outlining how they operate while others do not, but it is a rare business that doesn’t eventually run into problems without one. The operating agreement—or partnership agreement, or articles of incorporation, depending upon your entity—is a roadmap for running your business internally, and it clarifies issues such as how meetings are conducted, voting rights, ownership interests, capital contributions, and how the company will be managed. This is especially important when the company will be jointly owned by two or more people, but even in the cases of single-member LLCs this is an important document. Banks, for example, will require a copy of your operating agreement in order to lend your business money. It is much smarter, and easier, to have this in place at the outset.
Getting an EIN and a CPA
The final, very general, steps are to apply with the Internal Revenue Service for an Employee Identification Number (EIN) and contact a good Certified Public Accountant (CPA) to advise you as to tax issues. Even if you do not anticipate having employees, an EIN is important because it replaces your social security number on documents such as W-9s and bank records. Consultation with a CPA is not a legal requirement, but it is highly recommended, because in the area of taxation a little foresight can save thousands of dollars when tax season rolls around.
Our attorneys are available and ready to guide you through the process of starting a small business, from the general steps outlined above to the tiniest details particular to your situation. Contact us today at Mejias Lindsay PLLC to explore your options.