As a veteran and now corporate services attorney, it is important to be aware of the resources available to assist business owners and entrepreneurs with properly setting us business entities. Now, veterans are provided a unique benefit to assist veteran-owned businesses with start-up costs.
In Texas’ 87th Legislature, Regular Session, Senate Bill 938 reinstated the New Veteran-Owned Business statute effective as of Jan. 1, 2022, to provide veteran-owned business entities a waiver for the formation fees and the Texas franchise tax for up to five (5) years (“Waiver”).
To qualify, as a New Veteran-Owned Business, a new business must be entirely owned by one or more veterans, honorably discharged from any branch of the U.S. Armed Forces (definition of New Veteran-Owned Businesses). An eligible entity will need to provide a Veteran Verification Letter issued by the Texas Veterans Commission for each Veteran owner. A qualifying New Veteran-Owned Business must be formed on or after Jan. 1, 2022, through Dec. 31, 2025.
This Waiver should incentivize veterans to start their own business and will save veterans the formation fee of $300 (LLC or corporation) to $750 (professional associations or limited partnerships).
The Waiver Qualifying Process
The Veteran Entrepreneur Program, established by the Texas Veterans Commission, published the New Veteran-Owned Business Pre-Qualification Process to assist veterans to qualify as a New Veteran-Owned Business. Here are the steps:
- To obtain the Veteran Verification Letter, each veteran owner must connect with the entrepreneur program via Veteran Entrepreneur Program and select Veteran Verification Letter from the menu. Veterans will be contacted with instructions to securely send the required documents.
- Upon receipt of the Veteran Verification Letter, a Certification of New Veteran-Owned Business (Form 05-904) must be completed. Include the unique identification code from the Veteran Verification Letter and ensure the business entity name matches the certification of formation.
- Submit the following documents to the Texas Secretary of State via SOSUpload: Veteran Verification Letter, Certification of New Veteran-Owned Business, and certificate of formation for the appropriate entity type.
- For businesses NOT formed through the Texas Secretary of State; the Veteran Verification Letter, Certification of New Veteran-Owned Business, and Texas Business Questionnaire (Comptroller Form AP-224) should be submitted to the Texas Comptroller of Public Accounts.
New Veteran-Owned Business Requirements to Remain in Good Standing
To maintain the right to conduct business and remain in good standing within the State of Texas, the New Veteran-Owned Business must file Form 05-163, a Texas Franchise No Tax Due Report. To receive the Waiver, select “Veteran-Owned Business.” The New Veteran-Owned Business is eligible for the Waiver for the first five (5) years, unless the entity ceases to qualify as a New Veteran-Owned Business.
Why a Properly Formed Business Entity is Important
A properly formed business entity is important and can provide a business owner with many advantages to include: personal liability protection, tax benefits, credibility, separate legal identity, and potentially easier access to funding.
Personal liability protection protects your personal assets from legal or financial obligations of the business. Certain tax benefits may be available depending on the type of entity selected.
An established business entity can legitimize your business to customers, vendors, and can be helpful to obtain financing or establishing partnerships. As a separate legal identity, the business can enter into contracts, own property, and take legal action.
If the business has a need to raise funds, investors or lenders may be more willing to invest in or lend money to an established business, separate from the owners. When choosing a business entity, owners need to decide upon the correct business entity and structure.
Generally, a business owner’s options for a business entity include a corporation (Inc.), limited liability company (LLC), partnership, limited partnership (LP), limited liability partnership (LLP), or professional association. You should consult an attorney and accountant to ensure the business structure set-up with the appropriate balance of legal protections, tax considerations, and benefits.
For the entity to be properly formed, it is imperative the appropriate corporate documentation is prepared. Depending on the business entity chosen, there are various legal requirements and best practices a business owner should follow to ensure the benefits of the business entity are realized. For example, an LLC should have a company agreement and formation resolutions; a corporation should have bylaws and a shareholder agreement; and a partnership should have a partnership agreement, other documentation may be required.
Call to Action
While every veteran’s transition from the military is unique – the skills and training gained during a veteran’s military service often translates well to entrepreneurship. The Waiver benefit is one I hope many fellow veterans will utilize to pursue their entrepreneurship dreams.
- Texas Secretary of State – state.tx.us
- Texas Veterans Commission – texas.gov
- Texas Comptroller of Public Accounts – texas.gov
- S. Small Business Administration – sba.gov/business-guide/launch-your-business/choose-business-structure
About Sean Buckley: Adams and Reese Associate Sean Buckley practices in real estate, mergers and acquisitions, and corporate services, advising clients with matters related to entity selection and formation, corporate governance, and real estate transactions to identify proactive solutions and to mitigate risks. Sean serves on the Board of Directors for VEL Institute (Veterans, Entrepreneurs, and Leaders) a non-profit organization based in The Woodlands, TX, he previously served as Vice President of the Board for the Global War on Terror Memorial Foundation, and completed pro bono work for Lone Star Legal Aid. Sean is a veteran U.S. Naval Officer having served more than six (6) years as a surface warfare officer and deployed twice in support of the Global War on Terrorism.