business

Starting A Business In Texas

By A.A. (Trey) Henderson III

Attorney at Law

Starting a business in Texas can be very complicated. As an attorney, I frequently
talk to clients that may be experts in their respective fields but have many
questions about running a business. In this article, I address many of those basic
questions. If you are starting your own business, I recommend that you consult an
attorney and a CPA early on in the process. Doing things properly up front can
save you money and headaches in the future.

Legal Considerations

Should you incorporate?

I recommend incorporating most businesses, depending on the liability involved
and the anticipated revenue. This will give the business limited liability. The
liabilities should not flow through to the owners. For instance, if a business is not
incorporated and loses a lawsuit for $10,000, the prevailing party may be able to
collect the judgment from the individual owners. If the business is incorporated
properly, the liability will usually not flow through to the individual owners.

What type of entity?

There are many forms of entities that provide limited liability in Texas. The most
common are corporations, limited liability companies and limited partnerships. You
should consult an attorney and a CPA to determine the best type of entity for your
business. For a more detailed article on different types of entities, go to
www.houstonattorneys.com/articles.html.

Shareholders Agreements

I often recommend a Shareholders Agreement for corporations with a small number
of shareholders. Among other things, a Shareholders Agreement can limit the
transferability of the shares, set standards for the sale of stock, and determine what
happens if a shareholder dies. For instance, what happens to a business when one
of two shareholders dies and all of his shares go to his family? The other
shareholder now has many new shareholders to deal with. I have seen many
corporations involved in litigation that could have been avoided with a properly
executed Shareholders Agreement.

Lease

Commercial leases are negotiable. Have an attorney review any lease before
signing it.

Employment Agreements

Texas is an employment at will state. For the most part, employers can hire or fire
an employee for any reason that does not violate a statute. I usually do not
recommend employment agreements because they may convey more rights to an
employee. I recommend employment agreements for executives, when pay is based
on commission, when a non-compete is necessary or in other extraordinary
circumstances.

Employee Manual

Employee manuals or handbooks are a good investment, especially if the business
has 15 or more employees. The manual should outline all company policies,
including policies on sexual harassment and discrimination. The presence of a
good manual could help prevent liability in a lawsuit.

Practical Considerations

Employees

Employees are often the biggest headaches for a business. The more employees
you have, the more difficult it is to control the work environment. Also, certain
federal and state laws come into effect depending on the number of employees you
have. With 15 employees, most of the sexual harassment and discrimination laws
apply to a business. The Family and Medical Leave Act applies to businesses with
over 50 employees. Employers should also be wary of certain labor laws, including
minimum wage and overtime laws.

Worker's Compensation

Worker's Compensation in Texas is not mandatory. A business may either opt in
or opt out. Businesses that opt in pay into the system and employees can file
claims if they are injured on the job. If a business opts out, an employee can sue
the business if he or she gets injured on the job and the business is considered
negligent. You should consult an attorney and an insurance agent to determine if
Worker's Compensation is right for your business.

Insurance

Depending on the type of business, insurance can be very crucial. In addition,
many leases require minimal insurance. Another popular tool for small businesses
is key man insurance. Consult an insurance agent before starting a business.

Banking

I strongly recommend developing a relationship with a bank when starting a
business. It is important that you choose a bank that you can trust and that will
answer questions.

Obtaining a loan

Starting a business may require you to get a loan. SBA loans are for small
businesses and are partially government backed. Consult your banker about the
feasibility and requirements of a loan.

Benefits

Benefits are usually an issue with any company, small or large. These include
retirement savings plans such as a 401K or SEP IRA and health plans. Having
benefits is not mandatory in Texas but you should consult an attorney if you pay
different benefits to different employees.

Accounting Considerations

How do I pay myself?

You normally will pay yourself and your employees in salary. Most of the time the
owners will also be employees. When a business pays salary to employees, the
business must pay its share of social security and Medicare taxes, and also
withhold the employee's portion. Periodically, the business will send payroll tax
withholdings to its bank to be forwarded to the Internal Revenue Service. A
business can also pay the owners in dividends, without payroll deduction. You
should consult a CPA on the proper payment methods and amounts.

Expenses

Most expenses that are considered ordinary and necessary for the business are
deductible as ordinary expenses. Startup costs are amortized over 5 years. It is
important to consult a CPA to determine what expenses you can take. I have had
numerous clients that were not taking as many deductions as they were entitled to
until they consulted a CPA.

S Corporation?

The main difference between an S corporation and a C corporation is the way they
are treated for tax purposes. From a liability standpoint, both are treated the same
way. Consult a CPA to determine if S status is good for your business.

Marketing Considerations

What's in a name?

Getting a good name could mean a great deal to your business. There are many
different places to check name availability. First, you may need to get an assumed
name with the county. This gives you preference for the name in the county.
Second, you may want to incorporate your business in Texas and get the name
reserved with the Secretary of State. Third, you may want to register the name as a
Trademark. You can check on the availability by doing a search at www.uspto.gov.
Finally, you may want to reserve a web address with the name of the business.
This may be done at a number of locations such as www.networksolutions.com, or
www.register.com. I recommend checking all of these sources before choosing a
business name.

What's in a web site?

In today's society, a web site can be very beneficial to your business. Some
businesses sell products online and some just use the web site for imformational
purposes. For instance, I have found my law firm web site very beneficial to
provide information about the firm and to provide useful links for my clients.

Advertising

Advertising is especially important to new businesses and can be in many forms.
The most common are yellow pages, newspaper, internet, flyers, fax and word of
mouth. Develop a plan that best suits your needs.

Summary

There are many considerations when starting a business. The best advice I can
give is to seek advice from the proper professionals in the areas of their expertise.

Not certified by the Texas Board of Legal Specialization.