Business planning for American veterans: good news! - by Daniel L. O’Neil

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on 17 March 2016
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If you are a veteran of the United States armed forces and an entrepreneur looking to start a new business in Texas then I have good news for you. 

  • How would you like to avoid paying filing fees (approximately $310) to the Texas Secretary of State to form your entity?
  • How would you like to be exempt from the Texas franchise tax for five years?

It was SB1049 which led to the law change first of the year. If these cost savings sound good to you then please keep reading.

Business planning is a large part of the life of a tax lawyer. As a tax lawyer it is very enjoyable for me to work with entrepreneurs that have an idea and want to work with me to set up their new business and go through the business planning process.

As a firm we always enjoy the opportunity to work with veterans to solve their legal problems, and to plan around foreseeable business and tax issues as well. One of our partners, Phyllis, is a U.S. Army veteran. The executive director of the nonprofit that I serve on the board of is also a veteran. This is a year we are all focusing on expanding our services and visible support for the veteran community, especially those veterans that are in the GLBTI community and their supportive allies. So this is a good year to have a favorable law change for veterans that are planning to start up a new Texas business.

Besides choosing the name of the business which causes some consternation when it is already claimed by an active business, the next most important question is how many people are going to be involved at the member (owner) level. This factors into the larger choice of entity discussion. But practically, for veterans, it is now of paramount importance in determining if you can save money.

Generally speaking here: Limited Liability Companies (“LLCs”) can be organized as single member LLCs or as multiple member LLCs. Members can be natural persons (you and me, as humans) or entities (The Birmingham School of Law and Hair Design, Inc.)

For a single member LLC the analysis is simple: you are a qualified veteran and you can prove it by following the proper process, or you are not a qualified veteran because you cannot prove it. But for multiple member LLCs to be eligible for the veteran incentive there are two major limitations: (1) each member needs to be a qualified veteran and prove it and (2) there can be no entity members, only natural persons. If you can’t meet either of those tests then you are not eligible for the veteran incentive so you need to pay the filing fees to the Texas Secretary of State and the franchise tax to the Texas Comptroller.

The process works slightly different (slower) for a veteran incentive business than the traditional route:

  1. Each intended member of the entity needs to request an honorable discharge letter from the Texas Veteran Commission (“TVC”) along with their DD214;
  2. When all intended members have received their honorable discharge letter from the TVC then we would complete the certification statement (05-094) first; and
  3. Then we would send (by snail mail instead of using the online system) each honorable discharge letter, the certification statement, and the entity's formation paperwork in to the Texas Secretary of State for processing.

The last important thing to note: if there is a change in membership in that initial period and all members do not still meet the veteran qualifications the business becomes subject to the franchise tax.

There are a lot of important steps to take in the business planning process to launch a new business. We help you through the entire process – which you won’t get if you go with an online document assembly shop. We can guide you through the choice of entity discussion and related tax issues. We can help you with all of the paperwork and explain why it matters. And we can work with you to draft formation documents that reflect the unique needs of your vision and protect your business with various provisions in the operating or company agreement, or bylaws of a corporation. Our costs will be sensible, depending on the complexity of your needs. If you would like Frye, Oaks, Benavidez & O’Neil, PLLC to help you with business planning and forming your entity please give us a call today.

713-227-1717

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