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8 Things Businesses Need To Know About Forfeitures And Terminations In Texas

8 Things Businesses Need To Know About Forfeitures And Terminations In Texas

Small business owners and entrepreneurs put their all into their businesses. They sacrifice their time, energy, and money to support their entrepreneurial endeavor. To ensure a successful future, it’s critical to understand the legal jargon and rules surrounding your business entity. 

Carson Law believes that every business deserves legal aid and representation, no matter the size. You don’t have to be a large corporation to benefit from legal services. And that’s where we come in!

To help, we’ve put together a list of the 8 things businesses need to know about forfeitures and terminations in Texas.

Understanding The Legal Terms

Carson Law is the law firm that wants to see you succeed in following your dreams. That’s why we’re bridging the legal access (and knowledge) gap for entrepreneurs of science, technology, and the arts industries with creative legal counsel. 

Do you need legal advice for your Texas business? Every day that passes without ensuring proper filing, payment of taxes, a lack of a detailed partnership agreement, and more could be putting you and your business at risk. Contact us today to find out how we can help you take the steps to protect your business. 

Forfeiture

The state of Texas can choose to forfeit your business for a number of reasons. Some of these reasons include: 

  • Failure to pay franchise taxes
  • Failure to submit an annual franchise report
  • An entity operating for criminal enterprise
  • Too many bad judgments
  • Not abiding by Texas laws 

Termination

An entity may choose to terminate itself for several reasons. To do this voluntarily, the entity must wind down its affairs, submit the certificate of termination, and pay the filing fee. Please note that an entity may be subject to other termination requirements as well. 

Entity

Whether or not you file a certificate of formation, when you start a business in Texas, it is called an entity. 

Limited Liability Company

The limited liability company (LLC) is a common filing entity in Texas that requires filing a certificate of formation with the Texas Secretary of State. LLCs may be manager-managed or member-managed. This flexibility allows LLC owners to manage the entity themselves or elect managers to deal with the management aspects. 

8 Things Businesses Need To Know About Forfeitures And Terminations

To ensure you protect your business and yourself, it is important to understand what forfeitures and terminations have to do with your business. Discover why your entity may go into forfeiture or why you may choose to terminate voluntarily. 

1. Why & When To Make Changes To An LLC

Sometimes, you realize the LLC you had in mind is no longer the reality. A common reason for this occurs when a member of an operating partnership is not abiding by the agreement. In this situation, the members may choose to terminate the entity’s standing with the state and create a new entity. 

Other examples of making changes occur when a business previously went into forfeiture, and members have decided to reinstate the entity. However, rather than reinstating a forfeited entity, it can be much simpler to form a new LLC. 

2. Pay Franchise Taxes & File Reports On Time

All businesses operating in Texas must submit an annual report – called the Franchise Tax Report. For your entity to continue to receive the benefits of protection from the state of Texas, you must file your reports and pay your franchise taxes on time. Failure to submit this report relays to the state that you are no longer in business. 

Even if your business doesn’t earn enough revenue to meet franchise tax requirements, you must file the report. 

Businesses that make over $1 million in a year must also pay franchise taxes. 

If the state of Texas does not receive your timely report, they assume that you are no longer in business. At that point, your entity goes into forfeiture. 

3. Get Ahead Of Late Franchise Tax Fees

Better late than never? Sometimes, but at what cost?

If you fail to file your report timely or pay your franchise taxes, you may have an option to pay them late. But with that comes a $50 per year fee plus interest. It can become very expensive very fast. If you’re struggling to come up with the funds, take proactive measures rather than putting it off. The fees can be overwhelming – depending on how long you’ve been outstanding. While you find yourself in forfeiture, know you could instead voluntarily terminate your business. 

4. Know When To Voluntarily Terminate Your LLC

For whatever reason you may want to stop your business entity from operating, it is best to terminate instead of involuntarily going into forfeiture. 

But to do this properly, you must take the right steps. To start, you must wind down the affairs, submit a certificate of termination, and pay a filing fee. 

To make sure you cover your bases, it’s best to speak to an attorney. If you miss a step, your entity may fall into forfeiture instead of voluntary termination. Give us a call at 832-621-0766 to discuss your options.

5. Outline Clear Language On Terminations From The Start

There’s nothing wrong with having bright expectations for the future of your business. But it’s also important to stay grounded in the reality that things can go south. 

To protect yourself and your business, outline clear language on terminations in the partnership agreement. For instance, you or your partner(s) may be happily married when you first get your business off the ground. But things happen. If you or a partner ends up going through a bitter divorce, it could put a stronghold on your business. 

This is also true if you start your business with someone other than a spouse. Outline clear language detailing what will become of the business if a partnership separation is to occur. And keep in mind this is just one example. Numerous situations can benefit from having clear language on terminations set forth from the get-go. 

6. Know & Understand Your Business Size

A further note in staying realistic is being clear about your business size. Whether you want to remain a sole proprietorship or you plan to scale to a  multi-million dollar corporation, you need to balance the current reality with plans for growth. 

Also, you may presume you’re a small business. But what does that mean? Ensure that your Certificate of Formation and Company Agreement outlines the true specifics of your business. If you don’t want to run a multi-million-dollar business, having the responsibilities of a full-blown corporation may be more complicated than you need.  

7. Keep Your Business In Good Legal Standing

If you fail to remain in good legal standing, you could risk your freedom and the business you’ve built. 

Companies can be judicially closed for illegal operations. These can include operating your business for a criminal enterprise, having too many bad judgments, and not abiding by the law. 

If someone ever asks you to help them by getting yourself or your business involved in money laundering, drug running, or anything of the sort, say no. Your time, company, and freedom are worth so much more. 

But sometimes, companies are wrongfully accused of operating illegally. For example, CBD is now legal in Texas. However, when it first came to the Texas scene, many rural companies were hit by citations from police who didn’t understand that CBD is not, in fact, marijuana. It might look the same and smell the same, but in Texas, one is legal and the other is not. If your business has been threatened or gone to forfeiture due to a misunderstanding, you need a lawyer to represent you. 

Get your business back in good standing with the help of the Carson Law Firm. Contact us today to schedule a consultation. 

8. Talk To A Good Tax Advisor

You’re running your business with everything you’ve got. As much as you believe you can do it all yourself, don’t forget that many things are better left to the experts.

With that said, talk to a good tax advisor. Find someone who will go further than crunching numbers to support your financial goals. My Tax Guy In Houston is a fantastic resource that has been helping its clients succeed for over 15 years. Whether you need help with business formations and tax structures, annual tax filing, the nuances of cryptocurrency, and more, I fully entrust my clients with My Tax Guy In Houston. 

Ensure Your Business’ Successful Future With The Carson Law Firm

Has your business entity been wrongfully terminated? Or are you unsure of the status of your LLC in the eyes of Texas?

No matter what questions you have about your business in Texas, we can help. Schedule your consultation with the Carson Law Firm today and look forward to your business’ successful future.