Central Texas is an area known for its dynamic growth and vibrant economy, making it an ideal location for new businesses. However, starting a business involves navigating legal requirements and hiring a reputable Killeen business formation lawyer to ensure compliance with local, state, and federal laws. Getting experienced legal assistance can help you avoid costly mistakes and legal issues.
At The Zimmerman Law Firm, we have decades of experience supporting business owners through the formation process. Whether it’s your first venture or you are an experienced entrepreneur, our team is here to help you successfully establish and grow your business. Call us today or fill out our online contact form to get started.
The Business Formation Process in Texas
Let’s look at how to form a business in the Lone Star State.
1. Initial Consultation
The formation process usually begins with an initial consultation with an attorney to discuss your goals and objectives. This step involves assessing your needs and vision so your lawyer can lay a solid foundation for your enterprise. You don’t have to have an attorney to establish a business in Texas, but having one can make the process much easier.
2. Choose a Business Structure
Selecting the appropriate business structure is a key decision. Common structures in Texas include sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.
Factors to consider when selecting a business entity include liability, taxation, management options, and funding. Each structure has distinct advantages and challenges, and a business formation lawyer can provide guidance tailored to specific needs.
3. Register the Business Name
Choosing a unique and appropriate business name is essential. Checking name availability with the Texas Secretary of State involves searching the state’s database to ensure the name isn’t already in use. If necessary, filing for a DBA (also known as an assumed name) allows the business to operate under a different name than its legal one.
4. Draft and Filing Formation Documents
Accurate and comprehensive formation documents are critical. For a corporations or LLC, you need to file a Certificate of Formation with the Texas Secretary of State and pay the associated fees to officially establish your business with the state.
In addition, owners should draft operating documents that will govern how they want the business to be run—bylaws for corporations, company agreements for LLCs, and partnership agreements for partnerships.
5. Obtain an Employer Identification Number (EIN)
An EIN is necessary for tax purposes and various business activities. Applying for an EIN through the IRS is straightforward and involves submitting an online application or completing Form SS-4. This number is essential for opening business bank accounts, hiring employees, and filing taxes.
6. Comply with Local, State, and Federal Regulations
Compliance with regulations is a vital aspect of business formation. This includes filing a Beneficial Ownership Information Report (BOIR) with the Financial Crimes Enforcement Network (FinCEN) within 30 days of business formation.
You’ll also need to obtain all necessary permits and licenses to operate a business in Killeen. Adhering to zoning laws and local ordinances ensures that the business operates legally within the community. Additionally, industry-specific regulations may apply, and staying informed about these requirements is crucial to avoid legal issues and fines.
Types of Business Entities Available in Texas
Each type of business entity offers unique advantages and disadvantages, and it’s important to choose the one that best aligns with your goals, needs, and desired level of personal liability protection. To discuss your options, seek the advice of a business formation lawyer in Killeen.
Sole Proprietorship
A sole proprietorship is the simplest business entity, as it is owned and operated by a single individual. This structure requires minimal formalities and is easy to set up.
The owner has complete control over the business, but this also means they are personally liable for all business debts and obligations. Sole proprietorships are not separate legal entities from their owners, and profits are reported on the owner’s personal tax return.
Partnership
Partnerships involve two or more individuals agreeing to share a company’s profits and losses. Common types of partnerships in Texas include:
- General partnerships—have partners who share equal responsibility and liability;
- Limited partnership—one or more general partners manage the enterprise and have unlimited liability, while one or more limited partners have restricted liability that covers only their investment in the company; and
- Limited liability partnership—partners have limited liability, protecting them from the partnership debts and obligations and other partners’ misconduct or negligence.
Your lawyer can help you decide which of these would be most suitable for your goals.
Limited Liability Company (LLC)
An LLC is a flexible business structure. It provides the limited liability protection of a corporation with the tax benefits and operational flexibility of a partnership.
Owners are known as members, and they are not personally liable for the company’s debts and liabilities. LLCs can be managed by members or appointed managers, and profits and losses can be passed through to members’ personal tax returns, avoiding corporate taxes.
Corporation
Corporations are separate legal entities from their owners, providing strong protection against personal liability. There are two main types.
- C Corporation (C-Corp). This type of corporation is taxed separately from its owners, leading to double taxation (taxed once on corporate profits and again on shareholder dividends). However, it offers the benefit of unlimited growth potential through the sale of stock.
- S Corporation (S-Corp). S-Corps allow profits and some losses to be passed through directly to shareholders’ personal income without being subject to corporate taxes. However, S-Corps have restrictions on the number and type of shareholders.
The decision as to the best business structure for your goals is a complex one, as there are many factors to consider. Your lawyer can help you sort through the details and find what would work best for you.
Professional Corporation
A professional corporation (PC) is a specialized corporation for licensed professionals such as doctors, lawyers, and accountants. PCs provide liability protection for shareholders against the malpractice of other shareholders but not against their own malpractice. This entity type offers professional services to the public, and the business structure is designed to offer the tax benefits of incorporation.
Nonprofit Corporation
Nonprofit corporations are formed for charitable, educational, religious, literary, or scientific purposes. They do not distribute profits to members, directors, or officers but reinvest the profits into the organization’s objectives.
Nonprofits can apply for tax-exempt status under IRS Code Section 501(c)(3), which exempts them from federal income tax and allows donors to deduct contributions. Nonprofits must adhere to specific regulatory requirements and maintain detailed records of their activities and finances.
Benefits of Hiring Our Killeen Business Formation Lawyers
‘At The Zimmerman Law Firm, we understand the complexities of starting a new company. Our expertise can simplify the formation process by ensuring all legal requirements are met accurately and efficiently. We provide personalized advice tailored to your specific needs, helping you choose the right business structure and navigate complex regulations.
We can also help you avoid legal pitfalls by identifying potential issues before they become problems. Common legal issues during business formation include improper documentation, non-compliance with regulations, and inadequate contracts.
By working with us, you benefit from our extensive experience and commitment to providing comprehensive legal support. We are here to guide you every step of the way, ensuring that your business starts on a solid foundation.
Contact Us Today
If you have any questions about forming a business in Killeen or are ready to start the process, call us to set up a consultation with a member of our team or fill out our online contact form.
Frequently Asked Questions
Here are some common questions new business owners in the Lone Star State may have.
What Permits and Licenses Do I Need to Operate My Business in Texas?
The required permits and licenses depend on your business type and location. Common requirements include local business licenses, health permits, and industry-specific licenses. Ensuring you have all necessary permits helps you operate legally and avoid fines.
What Ongoing Compliance Requirements Should I Be Aware Of?
Ongoing compliance requirements include filing annual reports, paying state taxes, maintaining accurate records, and renewing necessary permits and licenses. You’ll also need to keep your BOIR up to date with FinCEN, pursuant to the requirements of the federal Corporate Transparency Act. Staying compliant helps you avoid penalties and maintain good standing with the state.
Can I Change My Business Structure Later?
Yes, you can change your business structure as your business grows and evolves. However, this process can be complex and may have tax and legal implications.