Starting a business in Texas is an exciting venture, but it also comes with its own set of legal responsibilities. At C.Y. Lee Legal Group, PLLC in Houston, Texas, we understand business law and know how critical it is to get things right from the start.
Many new business owners overlook essential steps, which can lead to costly legal issues down the road. By being proactive and taking the proper legal steps within business law, you can avoid common mistakes and set your business up for success.
Choosing the Right Business Structure
One of the first decisions you’ll need to make when forming your business is selecting the right legal structure. The structure you choose impacts everything from personal liability to taxes, and it’s a decision that should be carefully considered.
There are several options for business structures in Texas, each with its own benefits and drawbacks. We often advise our clients to weigh the pros and cons of the following:
Sole proprietorship: This is the simplest structure, where the business owner is personally responsible for all debts and liabilities. While easy to set up, it doesn’t provide protection from personal liability.
Partnership: If you plan to go into business with others, a partnership might be right for you. It’s relatively easy to form and allows for shared decision-making, but each partner is personally liable for the business's debts.
Limited Liability Company (LLC): An LLC provides liability protection for its owners, known as members. It also offers flexible tax options. This structure is often favored by small business owners who want to protect their personal assets.
Corporations: Corporations provide strong liability protection and are beneficial if you plan to raise capital or go public in the future. However, they come with more paperwork and regulatory requirements.
The choice of business structure is not something to take lightly. Each structure impacts your taxes, personal liability, and how your business is viewed in the eyes of the law. At C.Y. Lee Legal Group, we can help you evaluate the right structure based on your specific business needs.
Registering Your Business
Once you’ve chosen your business structure, you must register your business with the appropriate state and local authorities. This includes applying for an Employer Identification Number (EIN) from the IRS and filing with the Texas Secretary of State if you’re setting up an LLC or corporation.
When registering your business, keep these steps in mind:
Choose a business name: Before you can register your business, you’ll need to decide on a unique name. Make sure it’s not already taken by another entity in Texas.
File with the Texas Secretary of State: Depending on your business structure, you may need to file Articles of Organization (for LLCs) or Articles of Incorporation (for corporations).
Register for taxes: In addition to federal taxes, you’ll need to register for state taxes with the Texas Comptroller of Public Accounts. This may include sales tax, franchise tax, or other state-specific taxes depending on your business type.
Obtain business licenses and permits: Depending on the industry you’re in, you may need to apply for various licenses or permits at the state, county, or city level. Make sure you know the specific requirements for your business.
Filing the correct paperwork and following the proper procedures will save you from headaches later. We at C.Y. Lee Legal Group are well-versed in Texas business law and can assist you in making sure you’re meeting all the legal requirements.
Protecting Your Intellectual Property
When starting a business, it’s important to safeguard your intellectual property (IP). Intellectual property refers to creations of the mind, like logos, brand names, and inventions. If you don’t take the necessary steps to protect your IP, you risk having someone else use or steal it. Common IP protections include:
Trademark protection: Trademarks help protect your brand and logo, making sure no one else can use a similar name or symbol that could confuse your customers.
Copyright protection: Copyrights protect original works of authorship, such as websites, marketing materials, or artistic creations.
Patent protection: If your business involves creating a new product or invention, filing for a patent can prevent others from making, using, or selling your invention without permission.
IP law can be tricky, but taking the right steps to protect your business ideas early on can prevent costly legal disputes later. C.Y. Lee Legal Group can guide you through the process of applying for patents, copyrights, and trademarks to protect your unique ideas.
Drafting Proper Contracts and Agreements
No matter the size of your business, you will need to enter into contracts with clients, vendors, employees, and possibly other business owners. Failing to draft solid contracts can lead to misunderstandings, disputes, and even lawsuits.
Here are a few common agreements that many businesses need:
Client contracts: These agreements define the terms and expectations between your business and your clients. It’s crucial to outline everything clearly, from payment terms to timelines and deliverables.
Employee contracts: If you’re hiring employees, you’ll need contracts that set the expectations for job duties, compensation, benefits, and confidentiality. Clear employee contracts can prevent misunderstandings or claims of wrongful termination.
Partnership agreements: If you’re forming a partnership, it’s critical to have an agreement that outlines the roles, responsibilities, and ownership stakes of each partner.
Non-disclosure agreements (NDAs): If your business involves sharing sensitive information with others, NDAs can help protect your intellectual property and prevent competitors from taking advantage of your ideas.
Working with a business law attorney assures your contracts are legally sound and protect your interests. At C.Y. Lee Legal Group, we offer professional contract drafting and review to make sure you’re covered.
Managing Taxes and Financial Compliance
Understanding your tax obligations is a fundamental aspect of business law. If you fail to comply with state and federal tax regulations, your business could face penalties, fines, or even legal action.
Consider the following steps to manage your taxes effectively:
Keep detailed records: Good recordkeeping helps make sure your taxes are filed correctly. Make sure you track income, expenses, and any deductions you’re eligible for.
Understand sales tax: In Texas, businesses that sell products or services are required to collect sales tax from customers. Be sure you’re properly registered and collecting the correct amount of sales tax.
Pay self-employment tax: If you’re a sole proprietor or member of an LLC, you’ll need to pay self-employment tax in addition to income tax.
Hire a qualified accountant or tax professional: Taxes can be complicated, especially for businesses. Hiring an accountant can help make sure your taxes are filed correctly and that you’re taking advantage of any available deductions.
By staying on top of your taxes and working with a professional, you can avoid costly mistakes and financial penalties.
Handling Employee Benefits and Worker’s Compensation
If you plan to hire employees, it’s important to understand your obligations when it comes to benefits and worker’s compensation. Texas doesn’t require businesses to carry worker’s compensation insurance, but it’s a good idea to do so to protect your employees and your business.
Some common employee benefits that need to be addressed are:
Health insurance benefits: Many employers offer health insurance to their employees, and some businesses may be required to do so under the Affordable Care Act (ACA).
Retirement benefits: Offering retirement plans like 401(k)s can help you attract and retain employees. Make sure you comply with federal regulations when setting up and managing these plans.
Paid leave: Texas businesses are not required to offer paid sick leave, but you may choose to offer it as a benefit to your employees.
Worker’s compensation insurance: Although not required in Texas, many businesses opt for worker’s compensation insurance to cover employees who are injured on the job.
By properly handling employee benefits and worker’s compensation, you can create a safer work environment and stay compliant with the law.
Avoiding Discrimination and Harassment
Texas businesses are required to comply with both federal and state laws regarding discrimination and harassment. It’s essential that you understand these laws to prevent discrimination in the workplace and protect your business from lawsuits.
Here’s how to stay compliant:
Follow anti-discrimination laws: Employers must not discriminate against employees based on race, color, religion, sex, national origin, age, disability, or genetic information.
Implement a harassment policy: Businesses should have clear policies in place to prevent harassment in the workplace. Employees should know where to report incidents and how they’ll be handled.
Provide training: Make sure your employees are trained on harassment policies and understand what constitutes inappropriate behavior.
Following these steps will help you create a respectful and inclusive workplace and minimize legal risks.
Contact Us Today
Starting a business in Texas is an exciting journey, but it's important to take the right legal steps to avoid costly mistakes. At C.Y. Lee Legal Group, PLLC, we’re committed to guiding business owners in and around Houston, Texas, through the various aspects of business law. Reach out to us today to discuss how we can help you avoid legal mistakes.
