Category: Business Planning

Starting a small business is an exciting journey, but it’s essential to ensure that your legal bases are covered to set yourself up for success. As Texas attorneys, we often guide clients through the nuances of business formation, regulatory compliance, and risk management. Here are some fundamental aspects you should consider when planning to launch your small business in Texas.

1. Choosing the Right Business Entity

The type of business entity you choose has significant legal and tax implications. In Texas, the most common types are sole proprietorship, partnership, limited liability company (LLC), and corporation. Here’s a brief overview:

• Sole Proprietorship: Sometimes call a “dba” or “doing business as,” this is the simplest form, but it offers no personal liability protection.
• Partnership: This involves two or more people. You can choose from general partnerships, limited partnerships, and limited liability partnerships, each providing varying degrees of liability protection and involvement.
• Limited Liability Company (LLC): Combines the liability protection of a corporation with the tax efficiencies and operational flexibility of a partnership.  In Texas, LLCs are subject to a franchise tax for income over a threshold.
• Corporation: This entity provides the strongest protection from personal liability but is more complex and expensive to manage.

2. Pros and Cons of an S Corporation Designation

A common myth is that an S Corporation is an entity type. However, an S Corporation is not a type of business entity but rather a tax designation status that can be elected by LLCs or corporations. It allows profits, and some losses, to be passed directly to owners’ personal income without ever being subject to corporate tax rates. However, not all businesses qualify for S Corp status.

Pros:

• Tax Savings: Only the dividends paid to the shareholders are taxed at the lower tax rate, not the entire business income.
• Business Credibility: Being an S Corp may help a business appear more credible to investors and lenders.

Cons:

• Strict Qualifications: There are limits on the number of shareholders, and all shareholders must be U.S. citizens or residents.
• Stock Restrictions: S Corps can only have one class of stock, which may limit the company’s ability to raise capital.

3. The Importance of an Operating Agreement

For business entities, bylaws and/or an operating agreement is crucial. This internal document outlines the management structure, profit distribution, and various operational procedures, which helps prevent conflicts among members. Although not legally required in Texas, having one ensures that your business operates under your own rules, not just under the state’s default rules, which are often caveat emptor as to businesses.

4. Attorney Drafted Client Engagement Agreements

To protect your business and clarify the expectations between you and your clients, you should have a licensed attorney draft your client engagement agreements. These documents can detail the scope of work, payment terms, dispute resolution methods, confidentiality obligations, designation of governing law, and terms providing clear legal recourse for both parties.

Depending on the type of business being carried out, there may be statutory and legally required disclosures to your clients that are necessary to avoid penalties or unenforceability. For instance, there are laws that require specific fonts sizes and certain wording in disclaimers to certain contracts, or the business is subject to legal liability for failing to provide that information.

If the company practices across state lines, federal requirements need to be met as well. International companies must comply with additional governing laws, such as the Hague Convention and international treaties.

5. Recommended Insurances to Carry and/or Consider

Carrying the right insurance is crucial for risk management. The following should be reviewed and considered for your business:

• General Liability Insurance: Covers injuries or property damage caused by your business operations.
• Professional Liability Insurance/E&O Insurance: Also known as errors and omissions insurance, it covers damages that arise from professional mistakes or failure to perform.
• Property Insurance: Covers loss and damage to real or personal business property due to issues like fire and theft.
• Cyber Insurance/Cyber Liability Insurance: Covers financial losses that companies have as a result of ransomware attacks, data breaches, and cyber incidents.
• Workers Compensation: Covers for bodily injuries sustained by employees.
• Umbrella or Excess Policies: to protect directors from personal liability.
• Health Insurance: Decide if you are going to offer health insurance and investigate various coverages.

6. Other Recommendations

• Keep Good Records: Maintain accurate and detailed records of income, expenses, and investments.
• Understand Employment Laws: If you plan to hire employees, ensure you understand state and federal employment laws, including wage regulations and worker rights.
• Consult Professionals: Regularly consult with an accountant and a lawyer to keep your business compliant with current laws and best practices.
• Discuss your business model with professionals in the field so that you have an understanding of what the day-to-day business needs will be. Review options such as client management systems and software to assist you in growth and development.
• Considering marketing.  Be aware that some professions require marketing to be tailored to specific guidelines, so find a marketer that specializes in your niche area.

Starting a business involves navigating a complex web of decisions and legal implications. It’s always best to seek professional advice tailored to your specific circumstances to avoid common pitfalls and ensure compliance with applicable laws and regulations.  Schedule a Consultation today.  We look forward to assisting you!

So, you started a company, now what?  For small businesses, establishing and maintaining a strong credit profile is crucial for long-term success. A solid credit history opens doors to better financing options, favorable terms, and increased credibility among suppliers and customers. Building credit for your small business may seem daunting, but with careful planning and disciplined financial practices, you can achieve this milestone. In this blog post, we’ll guide you through the process of building credit for your small business.

This is general information only.  Please seek the professional guidance of a CPA or tax attorney for your specific situation.

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1. Separate Personal and Business Finances

One of the first steps to building credit for your small business is to separate your personal and business finances. Open a dedicated business bank account and obtain a federal tax identification number (EIN) from the IRS. Using personal funds for business expenses can lead to confusion and hinder your ability to establish a clear credit history for your business.

2. Register Your Business

Register your business as a legal entity, such as an LLC or corporation. Doing so not only protects your personal assets but also lends credibility to your business in the eyes of lenders and suppliers. This step will also enable you to establish a business credit profile, distinct from your personal credit history.

3. Start Small with Vendor Credit

Begin building your business credit by applying for vendor credit accounts. Many suppliers and vendors offer credit terms to businesses, even those with limited credit histories. These vendors may report your payment history to credit bureaus, helping you build a positive credit profile.

4. Obtain a Business Credit Card

Once your business has some vendor credit history, consider applying for a business credit card. Look for cards specifically designed for small businesses, as they often have better rewards and features tailored to your needs. Use the credit card responsibly, keeping your credit utilization low and making timely payments.

5. Apply for a Small Business Loan

As your business credit history grows, you can explore applying for a small business loan. Start with smaller loan amounts and work your way up as your creditworthiness improves. Be prepared to provide detailed financial records and a solid business plan to increase your chances of approval.

6. Make Timely Payments

Consistently making timely payments on your credit accounts is crucial for building and maintaining a positive credit history. Late payments can significantly impact your credit score and make it harder to access credit in the future. Set up reminders or automatic payments to ensure you never miss a due date.

7. Monitor Your Credit Reports

Regularly monitor your business credit reports from major credit bureaus like Experian, Equifax, and Dun & Bradstreet. Look for any inaccuracies or discrepancies and dispute them promptly. Keeping a close eye on your credit reports allows you to address any potential issues before they escalate.

8. Establish Trade Lines with Other Businesses

Building trade lines with other businesses can enhance your credit profile. Working with companies that report payments to credit bureaus will strengthen your business’s creditworthiness.

9. Demonstrate Financial Stability

Lenders prefer to work with financially stable businesses. Maintain a healthy cash flow, manage your debts responsibly, and demonstrate steady revenue growth to boost your creditworthiness.

Conclusion

Building credit for your small business is a gradual process that requires patience, discipline, and responsible financial management. By separating personal and business finances, starting with vendor credit, obtaining a business credit card, and making timely payments, you can establish a strong credit profile for your business. Remember to monitor your credit reports regularly and maintain financial stability to ensure your business’s creditworthiness continues to grow. With a solid credit history, your small business will be better equipped to seize opportunities and thrive in the marketplace.

Setting up a nonprofit organization for charitable purposes can be a fulfilling and impactful way to make a difference in your community. Nonprofits play a vital role in addressing social issues, supporting causes, and providing valuable services. If you’re considering establishing a nonprofit in Texas, this blog post will guide you through the process and provide you with the necessary information to get started.

Step 1: Define Your Charitable Purpose.

Before diving into the legalities, it’s essential to clearly define your nonprofit’s charitable purpose. Identify the social cause or mission that you’re passionate about and the specific goals you aim to achieve. This clarity will guide your organization’s activities and help you stay focused throughout the process.

Step 2: Choose a Legal Structure in Texas. 

Nonprofits typically operate under one of three legal structures: an unincorporated association, a nonprofit corporation, or a charitable trust. Each structure has its advantages and disadvantages, so it’s crucial to consult with an attorney to determine the most suitable option for your organization.

Step 3: Select a Board of Directors.

Your nonprofit will require a board of directors to oversee its operations and make strategic decisions. Choose individuals who are committed to your cause and bring relevant expertise, diversity, and connections to the table. Ensure you comply with any legal requirements for board composition.

Step 4: Draft and File Articles of Incorporation.

If you choose to form a nonprofit corporation, you’ll need to draft and file Articles of Incorporation with the Texas Secretary of State. These articles outline essential information about your organization, such as its name, purpose, registered agent, and initial board members. You may seek legal assistance to ensure accuracy and compliance.

Step 5: Develop Bylaws and Policies. 

Bylaws serve as your organization’s internal rules and regulations. They outline procedures for electing directors, holding meetings, making decisions, and other operational matters. Additionally, it’s essential to develop policies and procedures governing financial management, conflicts of interest, and other crucial aspects of your nonprofit’s operation.

Step 6: Apply for Tax-Exempt Status.

To be recognized as a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code, you’ll need to apply for tax-exempt status with the IRS. The application process involves completing Form 1023 or the streamlined Form 1023-EZ, depending on your organization’s projected size and activities. Be prepared to provide detailed information about your mission, programs, finances, and governance.

Step 7: Register with the Texas Attorney General’s Office.

In Texas, charitable organizations are required to register with the Texas Attorney General’s Office. This ensures compliance with state laws and regulations related to fundraising and financial reporting. Consult the Attorney General’s website for registration requirements and any applicable fees.

Step 8: Obtain Necessary Permits and Licenses.

Depending on the nature of your nonprofit’s activities, you may need to obtain additional permits or licenses from local or state authorities. Examples include permits for fundraising events, licenses for certain services, or compliance with zoning and building regulations. Research the specific requirements in your area and ensure full compliance.

Step 9: Maintain appropriate filings.

In general, exempt organizations are required to file annual returns, although there are exceptions. If an organization does not file a required return or files late, the IRS may assess penalties. In addition, if an organization does not file as required for three consecutive years, it automatically loses its tax-exempt status. Tax Exempt Organizations can be found by using the IRS’s searchable database.

Conclusion: 

Establishing a nonprofit organization for charitable purposes in Texas requires careful planning, attention to legal requirements, and a commitment to your mission. By following these steps and seeking professional guidance when needed, you can lay a solid foundation for your nonprofit’s success. Remember, this guide provides a general overview, and it’s important to consult with an experienced attorney who specializes in nonprofit law to ensure compliance with all applicable regulations. With dedication and perseverance, you can make a positive impact on your community through your nonprofit organization.

As a business owner in Texas, one crucial decision you need to make is whether to designate your business as an S Corporation (S Corp) or not.

This choice can have significant implications for your business’s tax structure and overall financial strategy. In this blog post, we will explore the benefits and considerations of becoming an S Corp, including tax strategies and the potential advantages of hiring yourself as an employee. By understanding these factors, you’ll be better equipped to make an informed decision that aligns with your business goals.

Common Misconception: The most common misconception about S-Corps is that they are an entity type. They are not a type of entity. S Corp status is a taxable designation. Different entities, such as LLCs, partnerships, and regular incorporations, can designate themselves as S Corps, so long as they meet the IRS requirements.

What is an S Corporation?  S corporations are entities that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on their corporate income. S corporations are responsible for taxing certain built-in gains and passive income at the entity level.

Benefits of Designating as an S Corp:

1. Pass-through taxation: One of the primary advantages of an S Corp is its pass-through taxation feature. Profits and losses “pass through” the business to the shareholders’ personal tax returns, avoiding corporate-level taxation. This can result in significant tax savings, especially if your business generates substantial profits.
2. Self-employment tax savings: S Corp owners who work for the business can divide their income into two components: salary and distributions. Only the salary component is subject to self-employment taxes (Social Security and Medicare), while distributions are exempt. By structuring your income in this way, you can potentially reduce your self-employment tax liability.

Tax Strategies for S Corps:

1. Reasonable salary determination: When you hire yourself as an employee in an S Corp, you must establish a reasonable salary. The IRS requires you to pay yourself a fair wage for the services you provide, similar to what you would pay an unrelated employee in a comparable role. Paying yourself an unreasonably low salary to minimize self-employment taxes can raise red flags and lead to IRS scrutiny. Consulting with a tax professional can help ensure your salary determination complies with IRS guidelines.
2. Tax-deductible employee benefits: As an S Corp, you have the ability to provide tax-deductible benefits to yourself and your employees. These benefits can include health insurance, retirement plans (such as a 401(k)), and other qualified employee fringe benefits. Taking advantage of these deductions can reduce your taxable income while simultaneously attracting and retaining quality employees.

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Example of Taxation of Sole Proprietorship: 

Suppose you own a Texas-based consulting business that generates an annual profit of $200,000. For simplicity, let’s assume you’re the sole owner and actively involved in the business. Here’s a comparison of tax scenarios between operating as a sole proprietorship and as an S Corporation:

1. Regular Taxation of a Sole Proprietorship: As a sole proprietor, all the business income is subject to both income tax and self-employment tax. Using a self-employment tax rate of 15.3% (12.4% for Social Security and 2.9% for Medicare) on the first $142,800 of net self-employment income (2021 rates):

Calculation:

• Net Business Income: $200,000
• Self-Employment Tax (15.3% of $200,000): $30,600
• Income Tax (assuming a 24% tax bracket): $48,000 (approximate federal income tax)
• Total Tax Liability: $78,600

2. Taxation as an S Corporation: As an S Corporation owner, you can split your income into a reasonable salary and distributions. Let’s assume a reasonable salary for your consulting services is $100,000, leaving $100,000 in profit distributions.

Calculation:

• Salary (subject to self-employment tax):
  • Self-Employment Tax (15.3% of $100,000): $15,300
  • Income Tax (assuming a 24% tax bracket): $24,000 (approximate federal income tax on salary)
• Distributions (exempt from self-employment tax):
  • Income Tax (assuming a 24% tax bracket): $24,000 (approximate federal income tax on distributions)
• Total Tax Liability: $63,300

In this example, by operating as an S Corporation and splitting your income into a reasonable salary and distributions, you could potentially save approximately $15,300 in self-employment taxes compared to operating as a sole proprietorship. Additionally, you may benefit from the tax savings associated with deductible business expenses, employee benefits, and other tax planning strategies available to S Corps.

It’s important to note that individual tax circumstances can vary, and this example is provided for illustrative purposes only. Consult with a qualified tax professional or attorney to evaluate your specific situation and determine the potential tax savings and benefits of choosing an S Corporation structure for your business. Disclaimer: The tax rates and regulations mentioned in this example are based on 2021. It’s essential to consider any updates or changes in tax laws that may occur in subsequent years.

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Considerations before Designating as an S Corp:

1. Eligibility requirements: To qualify as an S Corp, your business must meet specific eligibility criteria. These include being a domestic corporation, having only allowable shareholders (individuals, certain trusts, and estates), and limiting the number of shareholders to 100 or fewer. Additionally, all shareholders must be U.S. citizens or residents. The timeliness of designations is also key, as late designations will have to be explained.
2. Administrative and compliance responsibilities: S Corps have certain administrative and compliance obligations, such as filing annual reports, holding shareholder and director meetings, and maintaining accurate corporate records. These additional responsibilities may require extra time and resources, so it’s important to evaluate whether your business can meet these requirements.

Conclusion:

 Deciding whether to designate your Texas business as an S Corp involves careful consideration of various factors, including the tax advantages, hiring strategies, eligibility requirements, and administrative responsibilities. While pass-through taxation and potential self-employment tax savings make S Corps an attractive option for many business owners, it’s crucial to consult with a qualified tax professional or tax attorney to fully understand the implications and ensure compliance with IRS regulations. The Woodlands Law Firm always advises that businesses consult with a tax specialist before deciding to designate their entity as an S corporation.  However, if you have already decided that designating your entity as an S corporation is something you wish to do, The Woodlands Law Firm can assist you with executing and filing the appropriate paperwork.

As a Texas attorney, I have witnessed firsthand the consequences that arise when businesses fail to implement proper planning structures. In this article, I will explore real-life examples of what can happen when there is no plan in place, emphasizing the significance of proactive business planning and the necessity of operating agreements.

Chaos in Decision-Making: 

Imagine a scenario where a business lacks a well-defined decision-making process. Disputes between partners or stakeholders can arise, leading to impasses and gridlocks. Without a plan in place, conflicts can escalate, potentially resulting in expensive litigation or even the dissolution of the business. A comprehensive operating agreement provides clear guidelines on how decisions should be made, preventing chaos and ensuring the smooth functioning of the business.

Example: ABC Manufacturing Company In the absence of an operating agreement, the partners of ABC Manufacturing Company disagreed on key business decisions, such as expansion plans and capital investments. Unable to reach a consensus, the partners ended up filing lawsuits against each other, leading to a significant drain on financial resources and damaging the company’s reputation. Had they drafted a well-crafted operating agreement outlining decision-making procedures, this costly and disruptive dispute could have been avoided.

Uncertainty Regarding Ownership and Management:

Without a well-drafted operating agreement, questions can arise regarding the ownership and management structure of the business. This lack of clarity can create confusion, strained relationships, and potential power struggles among partners or members.

Example: XYZ Consulting Firm XYZ Consulting Firm was formed by three friends who began their venture without an operating agreement. As the business grew, so did disagreements over profit sharing, management responsibilities, and the admission of new partners. The lack of a clear framework resulted in a breakdown of trust and ultimately led to one partner exiting the business. The remaining partners were left scrambling to define the new ownership structure, which caused unnecessary disruptions and hindered the firm’s growth potential.

Insufficient Protection of Personal Assets:

One of the primary advantages of operating agreements is their ability to shield owners’ personal assets from business liabilities. When no operating agreement is in place, business owners may find themselves personally liable for the debts and obligations of the company, putting their personal assets at risk.

Example: DEF Construction Company DEF Construction Company operated as a general partnership without an operating agreement. When the company faced significant financial losses due to a failed project, the creditors pursued the personal assets of each partner to satisfy the debts. As a result, the partners faced financial ruin and had to liquidate their personal assets, including homes and savings, to settle the company’s obligations. A well-structured operating agreement with appropriate liability protections could have prevented this devastating outcome.

Conclusion: 

The examples discussed above highlight the perils businesses can face when they neglect the importance of business planning and operating agreements. By taking proactive measures to draft a comprehensive operating agreement, businesses can establish clear guidelines for decision-making, define ownership and management structures, and protect personal assets. Engaging the services of a knowledgeable attorney during the business planning process can help ensure that your business avoids the potential pitfalls that arise when there is no plan in place. Remember, it is never too early to start planning, but it can be too late.  Contact The Woodlands Law Firm for a Consultation today.

The Woodlands Law Firm handles non-profit issues and has assisted in winding up nonprofits and religious organizations. While there are slight differences between winding up a church versus a nonprofit, it generally follows similar steps.

Winding up a nonprofit, also known as nonprofit dissolution, is a significant and complex process that requires careful consideration and adherence to legal requirements. This guide aims to provide a step-by-step overview of the process of winding up a nonprofit or church in Texas. It’s important to note that the information provided in this blog post is intended as a general guide and should not be considered legal advice. Consulting with an attorney specializing in nonprofit and religious organizations is strongly recommended to ensure compliance with applicable laws and regulations.

Step 1: Initial Considerations and Decision-Making.

Before initiating the winding-up process, it is crucial for the church’s governing body to conduct thorough discussions and make an informed decision about dissolution. This may involve holding meetings, consulting with church members or directors (depending on how it is set up), and obtaining the necessary approvals, votes, and resolutions as per the nonprofit/church’s governing documents (e.g., bylaws).

Step 2: Seek Legal Counsel.

Engage the services of an attorney experienced in nonprofit law and nonprofit/church dissolution. A qualified attorney will provide guidance, assist with legal compliance, and ensure that all necessary steps are followed throughout the process.

Step 3: Compliance with the Nonprofit’s Governance Documents.

Review and follow the specific procedures outlined in the church’s governing documents, such as bylaws, articles of incorporation, or any relevant denominational rules or guidelines. These documents typically outline the process for dissolving the church and may require specific voting thresholds or notice requirements.

Step 4: Notification and Approval.

Notify the church members, board members, and relevant stakeholders about the decision to dissolve the nonprofit/church. In many cases, this involves holding a special meeting where members vote on the dissolution proposal. The governing documents may specify the voting requirements (e.g., a supermajority vote) for the dissolution to proceed.

Step 5: Asset Disposition.

Develop a plan for the disposition of the nonprofit/church’s  assets. This may involve selling or transferring property, distributing funds, paying off outstanding debts, and fulfilling any legal obligations. Consult with legal counsel to ensure compliance with applicable federal and state laws governing the distribution of assets held by religious organizations. Typically, a non-profit is safe to donate its assets to another non-profit with similar goals, but legal and taxable issues can arise when non-profits do business with for-profit entities.

Step 6: Notification to the Texas Secretary of State.

File the appropriate documentation with the Texas Secretary of State to formally dissolve the nonprofit/church as a legal entity. This may include filing articles of dissolution or other required forms. The specific requirements for dissolution filings can vary, so consulting with legal counsel is crucial to ensure compliance.

Step 7: Tax and Reporting Obligations.

Fulfill any outstanding tax and reporting obligations with the Internal Revenue Service (IRS), Texas Comptroller’s Office, and any other applicable agencies. This may include filing final tax returns, settling payroll taxes, and closing any other relevant accounts.

Step 8: Cancellation of Registrations and Licenses.

Cancel any registrations, licenses, permits, or certifications held by the church with various state and local agencies. This may include sales tax permits, charitable solicitation registrations, and other permits specific to the church’s operations.

Step 9: Dissemination of Final Information.

Communicate the nonprofit/church’s dissolution to all stakeholders, including members, directors, employees, creditors, and relevant community organizations. Provide information on the final disposition of assets, contact information for any ongoing matters, and any other necessary details.

Conclusion: 

Winding up a nonprofit/church in Texas involves several critical steps, including decision-making, compliance with governance documents, asset disposition, legal filings, and fulfillment of tax and reporting obligations. Given the legal complexities involved, it is essential to engage the services of an attorney specializing in nonprofit law to ensure compliance with applicable laws and regulations. This guide provides an overview of the general process, but it is important to seek individualized legal advice to address the specific circumstances of the church or nonprofit in question.  If you have questions, call us today!

If you’re starting a business, it’s essential to understand the various legal requirements involved. One such requirement is obtaining an EIN, also known as an Employer Identification Number. This number is also commonly referred to as a Federal Employer ID Number (FEID), Tax Identification Number, or Tax ID. An EIN is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to identify your business entity for tax purposes. In this blog post, we will provide a comprehensive guide on how to obtain an EIN, ensuring that you navigate the process smoothly and efficiently.

Step 1: Determine Eligibility:

Before you begin the application process, it’s crucial to determine whether you are eligible for an EIN. Generally, any business entity that has employees or is required to file specific tax returns is eligible for an EIN. This includes sole proprietorships, partnerships, corporations, and limited liability companies (LLCs).  Having an EIN for one business does not permit its usage for another business owned by the same Member(s) or Shareholder, so typically, an EIN is needed for each entity.  Otherwise, using the same number will cause confusion when it comes time to file taxes.

Step 2: Prepare the Necessary Information:

Gather the following information required to complete the EIN application:

1. Business Entity Type: Determine the specific type of entity you are applying for, such as a sole proprietorship, partnership, corporation, or LLC.
2. Responsible Party Information: Identify the individual who will act as the responsible party for the EIN application. This person should have the authority to make decisions for the business and provide their name, social security number (SSN), or individual taxpayer identification number (ITIN), and contact information.
3. Business Details: Prepare details about your business, including the legal name, trade name (if applicable), physical address, mailing address, and the date the business was established.
4. Purpose of the EIN: Clearly state the reasons for obtaining an EIN, whether it’s to start a new business, hire employees, or open a bank account.

Step 3: Choose the Application Method:

There are three ways to apply for an EIN: online, by mail, or by fax. The online application method is the fastest and most convenient. However, if you prefer the alternative methods, you can submit Form SS-4 by mail or fax it to the IRS.

Step 4: Online Application Process:

To apply for an EIN online, follow these steps:

1. Access the IRS website: Go to the official IRS website and search for the EIN application form (Form SS-4).  See https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers.
2. Complete the application: Provide all the necessary information as requested, ensuring accuracy and clarity.
3. Review the application: Carefully review the application before submission to avoid any errors or omissions.
4. Submit the application: Once you are confident in the accuracy of your application, submit it electronically. The system will generate your EIN immediately upon successful completion.

Step 5: Alternative Application Methods:

If you choose to apply by mail or fax, follow these steps:

1. Obtain Form SS-4: Download Form SS-4 from the IRS website or contact the IRS to request a physical copy.
2. Fill out the form: Complete the form using the information you gathered in Step 2. Ensure legibility and accuracy to prevent delays.
3. Review the form: Thoroughly review the form to verify that all information is accurate and complete.
4. Submit the form: Mail or fax the completed form to the appropriate IRS office as indicated in the instructions.

Step 6: Retain Your EIN:

Once your EIN is issued, it is crucial to keep it in a safe place as you will need it for various business activities. Make sure to provide your EIN to relevant parties, such as financial institutions, the IRS, and state and local agencies, as required.

Conclusion:

Obtaining an EIN is a vital step in establishing your business and complying with tax regulations. By following this step-by-step guide, you can navigate the EIN application process with confidence. Remember to gather the necessary information, choose the appropriate application method, and retain your EIN for future use. If you have any doubts or questions along the way, it’s advisable to consult with a qualified attorney or tax professional for guidance.  If you need assistance, please contact The Woodlands Law Firm today!

As a Texas attorney, I often encounter clients who are unsure about the different types of business entities available to them. Choosing the right entity is crucial as it impacts liability protection and bookkeeping requirements. In this blog post, we will explore the differences between a corporation, a limited liability company (LLC), a series limited liability company (Series LLC), a partnership, and an assumed name, shedding light on the varying levels of liability protection and bookkeeping obligations associated with each.

1. Corporation: A corporation is a legal entity separate from its owners (shareholders) and offers the highest level of liability protection. In Texas, corporations are typically formed as C corporations. Generally, under a C Corporation, shareholders’ liability is generally limited to the amount they invest in the corporation. Corporations must comply with certain formalities, such as holding regular meetings and maintaining proper records, to maintain their liability protection. They must also keep accurate financial records, including income statements, balance sheets, and cash flow statements. Notably, some people believe that an “S corporation” is a specific type of corporation. This is a misnomer, as the term “S corporation” is not a entity type per se, but rather a tax designation, as even an LLC can be taxed as a S Corp.
2. Limited Liability Company (LLC): An LLC is a popular choice for small businesses due to its flexible management structure and liability protection. The owners of an LLC are known as members. In Texas, an LLC can be managed by its members or by managers appointed by the members. Members’ liability is generally limited to their investment in the LLC. LLCs in Texas are required to maintain proper records of their activities and keep financial records, although the level of formality is typically less stringent compared to corporations.
3. Series Limited Liability Company (Series LLC): Texas is one of the few states that recognize the Series LLC, which allows for the creation of separate series within a single LLC. Each series operates as a distinct entity, with its own assets, liabilities, and members. The liability protection for each series is generally isolated from the others, offering a unique level of asset segregation. However, it’s important to note that the Series LLC structure is relatively new and complex, requiring proper maintenance and compliance to preserve the desired liability protection. Bookkeeping requirements for a Series LLC are similar to those of a traditional LLC, but additional care must be taken to track the activities and financials of each individual series.
4. Partnership: A partnership is a business entity formed by two or more individuals who agree to share profits and losses. There are two primary types of partnerships: general partnerships and limited partnerships. In a general partnership, all partners have joint and several liability, meaning they are individually responsible for the partnership’s debts and obligations. In a limited partnership, there are general partners (who have unlimited liability) and limited partners (whose liability is generally limited to their investment). Partnerships in Texas are required to maintain proper records of their activities and keep financial records.
5. Assumed Name: An assumed name, also known as a “doing business as” (DBA) name, allows an individual or entity to operate a business under a name other than their legal name. It’s important to note that an assumed name does not create a separate legal entity or provide liability protection. Instead, it is simply a way to conduct business under a different name. Assumed names must be registered with the appropriate county clerk’s office, and accurate records of the business’s transactions and financials should be maintained.

Conclusion: Choosing the right business entity is crucial for both liability protection and maintaining proper bookkeeping records. Corporations offer the highest level of liability protection but come with more formalities. LLCs provide flexibility and reasonable liability protection, while Series LLCs allow for segregation of assets and liabilities within different series. Partnerships have different levels of liability based on their type, and assumed names are a way to operate a business under a different name but don’t provide liability.  If you are planning on starting a business entity, The Woodlands Law Firm can help you.  Please set up a consultation today.

If your business is purchasing the assets of another business, consulting with an experienced attorney is absolutely recommended.  Crafting a comprehensive and legally binding asset purchase agreement (“APA”) is crucial for ensuring a smooth transfer of assets between parties. An APA outlines the terms and conditions of the purchase and sale of specific assets, including intellectual property, equipment, and goodwill. Generally, the following steps are required to complete an APA:

1. Initial Consultation:

Begin by meeting with your attorney and provide information regarding the buyer or seller, and explain the objectives and expectations. Give relevant information about the assets, the parties involved, and any specific provisions that should be addressed in the agreement. Identify whether any specialized industry regulations or legal considerations apply.  While attorneys are experts in the legal field, it is impossible for an attorney to know every nuance of every type of business field. It is a good practice to provide specific information and/or requirements that you are aware of, if you work in a specialized industry.  This will also reduce your attorney’s research time.

2. Identify Parties and Assets:

Clearly identify the buyer and seller by their legal names and addresses. Specify the assets to be transferred, providing detailed descriptions and any pertinent documentation, such as intellectual property registrations, equipment lists, and financial statements. Be comprehensive to avoid ambiguity.

3. Purchase Price and Payment Terms:

Determine the purchase price for the assets and outline the payment terms. This may include specifying the amount to be paid, the payment schedule, and any adjustment mechanisms based on factors like inventory valuation or working capital. Address the form of payment, such as cash, installment payments, or assumption of liabilities.

4. Representations and Warranties:

Include a section where both parties make representations and warranties regarding their ownership of the assets, their legal capacity to enter into the agreement, and the accuracy of the provided information. Address any limitations or disclosures to manage risk and potential liability.

5. Conditions Precedent:

Specify any conditions that must be met before the closing of the transaction. This may include obtaining necessary regulatory approvals, consents from third parties, or the absence of any material adverse changes in the business. Outline the consequences if any conditions are not satisfied.  Usually, failure to complete the precedent can undo the deal completely.

6. Indemnification and Limitation of Liability:

Detail the indemnification provisions, specifying which party will indemnify the other for any losses, liabilities, or claims arising from the transaction. Consider the scope, duration, and monetary limits of the indemnification, and outline any exceptions or exclusions. Your attorney will consult Texas laws regarding the enforceability of indemnification clauses. This area is especially sticky, as Texas requires specific wording if the parties want to require that the other party defend them (pay for their attorney’s fees) at the beginning of the suit, instead of having to win first and then be reimbursed, and Texas even requires specific fonts and/or attention to be drawn to these sections.

7.  Closing and Post-Closing Obligations: 

Define the closing date and the obligations of both parties before and after the closing. Address any post-closing matters, such as transitional assistance, employee retention, the transfer of licenses or permits, and the transfer of customer contracts or relationships.

8. Governing Law and Dispute Resolution:

Specify if the agreement will be governed by Texas law and designate a venue for resolving disputes, such as state or federal courts or alternative dispute resolution mechanisms like mediation or arbitration. Include any requirements for notice or negotiation before initiating formal dispute resolution.  If you have questions about these types of procedures, make sure to ask questions in order to understand them.  Oftentimes, when a deal goes sour and there is an arbitration clause, individuals and small businesses are surprised that they are forced into arbitration, which has a higher up-front cost, and limited opportunity to appeal.

9. Confidentiality and Non-Competition:

Include provisions regarding confidentiality to protect any sensitive information shared during the transaction. If applicable, address non-competition agreements that may restrict the seller from competing with the buyer in a specific geographic area or industry for a defined period.

10. Execution and Closing:

Ensure that the agreement includes signature blocks for all parties involved, indicating their full legal names, titles, and the date of execution. Consider whether any additional documents, such as bills of sale or assignment agreements, should be executed simultaneously with the APA.

Conclusion:

Drafting an asset purchase agreement requires careful attention to detail, a thorough understanding of the transaction itself, communication with the parties involved, and a comprehensive understanding of Texas law. Most forms copied online do not contain the specific Texas requirements needed for an enforceable agreement. Remember that the best laid plans include dispute resolution procedures. The Woodlands Law Firm can assist you in the drafting of such documents.  Book a consultation today.