Veteran-Owned Businesses Formed in Texas Under Senate Bill 1049 :: A Census
Veteran-Owned Businesses in Texas are on the Rise
As we celebrate Veterans Day, it seems like a good time to look at a recent piece of Texas legislation designed to encourage veterans to launch new businesses. That legislation is Senate Bill 1049 (“S.B. 1049”).
S.B. 1049 took effect on January 1, 2016. The bill increases the financial incentives for veterans to start a business by (1) waiving the filing fees with the Texas Secretary of State for the first five years of the business’s existence, and by (2) eliminating the franchise tax on veteran-owned businesses for that same time.
To qualify for these benefits, an entity must be 100% owned by one or more veterans who were honorably discharged from any branch of the United States military. S.B. 1049 applies to all veteran-owned businesses that meet these criteria and are formed in Texas between January 1, 2016 and January 1, 2020.
Data provided by the Texas Secretary of State shows that, by November of 2017, there had been 1,825 Certificates of Formation issued to qualifying veteran-owned businesses under S.B. 1049.
Of those 1,825 entities formed, all but nine entities remain in existence as of November 2017—not a bad record. The breakdown of the types of entities formed under S.B. 1049 are as follows:
So, has S.B. 1049 Worked?
Total Dollars Saved by Veteran-Owned Businesses Under S.B. 1049.
It is difficult to estimate how much veterans have saved from S.B. 1049—mainly because it’s unknown how much these businesses would otherwise owe in state franchise taxes. Texas’s franchise tax rate can vary, and entities have multiple choices for electing deductions that can change the amount due.
It is also worth noting that the franchise tax will begin phasing out entirely in 2020. With this phase-out, some qualifying veteran-owned businesses that benefit from S.B. 1049 may not save as much compared to other businesses. Nonetheless, the phase-out will be either neutral or beneficial for bottom lines across all Texas businesses, including veteran-owned businesses.
The second reason it’s difficult to calculate savings from S.B. 1049 is that different businesses make various filings with the Secretary of State, especially when starting out. While we know that each of the 1,801 veteran-owned LLCs and corporations saved at least $300 on their initial Certificates of Formation (a total of $540,300), S.B. 1049 stretches further than these start-up filings and covers all documents filed during the first five years of operations.
Examples of other filing fees waived under S.B. 1049 include fees for amending the Certificate of Formation, for changing the registered agent of a business, or for filing an Assumed Name Certificate. Thus, without looking at the filing history of each entity, it’s difficult to assess how much they’ve saved.
Nevertheless, calculating the savings from solely formation and termination filings reveals that veterans have saved over $542,600 in less than two years since S.B. 1049 took effect.
Entity Choice for Veteran-Owned Businesses.
92 percent of veteran-owned businesses filed under S.B. 1049 are LLCs. This figure means that veterans choose LLCs 8 percent more than their civilian counterparts. This choice aligns with an increasing trend in picking LLCs over other business vehicles, a trend that’s likely to continue (according to [a report from the Texas Secretary of State]( https://www.sos.state.tx.us/about/newsreleases/2016/071316.shtml)).
The waiver provision of S.B. 1049 might explain this recent affinity for LLCs among veterans. Since LLCs often carry more and bigger filing fees, S.B. 1049 relieves much of the financial burden of getting started—especially that pesky $300 fee for a Certificate of Formation.
The Number of Qualifying Veteran-Owned Businesses Has Steadily Increased.
As indicated by the chart below, the number of entities formed as qualified veteran-owned businesses in Texas has steadily increased since S.B. 1049 went into effect. This increase likely stems from growing awareness of the available benefits. Thus, the number of qualifying veteran-owned businesses will likely continue to increase as more veterans become aware of the potential savings from S.B.1049.
Current through the end of October 2017.
Veterans Can Still Benefit from S.B. 1049, but Time Is Running Out!
There is still plenty of time for qualifying veterans to take advantage of S.B. 1049 before it expires on January 1, 2020. Additionally, if a veteran-owned business has formed since 2016 but did not take advantage of S.B. 1049, the owner(s) may be entitled to a refund after filing some paperwork.
Although filing fees and franchise taxes may not, overall, represent huge business expenses, newly-formed veteran-owned businesses have every reason to take advantage of S.B. 1049’s benefits (any amount of savings helps!). But with time running out, veterans should act quickly to capture these benefits.
About the Author
Ford Harmon is our startup + business law guru and resident tech nerd. Ford helps clients navigate a multitude of business-law concerns. The majority of clients Ford assists are entrepreneurs, startups, or more well-established businesses with creative or tech-centric business models, as well as artists of all mediums.
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