A French Startup’s Guide to Setting Up in Austin, Texas: Legal Lessons 101 — Part 2 of 3 (post-formation details, e.g., EINs and bank accounts)
Part 1 of this 3-part series introduced the Austin ecosystem and the FAQs French founders send my way about visas and choice of entity when looking into expanding into the U.S. Just forming the entity is not all you need to know. Although we often brag about how quick and easy it is to form a company in the U.S., which is certainly true, there is more to do once you form the entity. This Part 2 addresses a few of those post-formation details. Part 3 will address the most frequent issues I see when French founders adjust to the “at will” employment concept on which Texas employment law is based.
DISCLAIMER: No one article can address all the details about market entry. This series of articles and this article just address issues that frequently arise with non-U.S. entrepreneurs expanding into the U.S. This article is for general informational purposes only: it is not legal advice and is not to be relied on as such. Consult an attorney as each individual case must be considered separately based on its own facts and circumstances.
POST-FORMATION DETAILS: DBA Registration, the EIN, Bank Accounts, Taxes
Forming the entity means the company exists as a separate legal person, but then what? A few next steps are worth noting.
1.Federal Tax ID Number (EIN). As soon as you have the entity formed, it is time to apply for an EIN. The company cannot open a bank account without it. But this step may be a two-step process if you do not already have a U.S. social security number. In that case, you may first need (speak with your accountant for your particular situation) to apply for an ITIN — which then allows you to apply for the EIN. Per the IRS, the ITIN, or “Individual Taxpayer Identification Number, is a tax processing number only available for certain nonresident and resident aliens, their spouses, and dependents who cannot get a Social Security Number (SSN).”
2.Registration of DBA. You formed the company, but perhaps you do not “do business as” (“DBA” = “doing business as”) that company name. If you are ACME Corp. but interact with clients and vendors as “Tech Stuff Iz Us,” you must register that “DBA” with the appropriate authorities: for state information see the form and information here; for local information for the Travis County Clerk, see the information here. A single corporate entity may have more than one DBA associated with it.
3.Texas Workforce Commission (TWC). Will the company have employees? The company needs to sign up with the Texas Workforce Commission. TWC collects the “unemployment tax.” The deadline to register with the TWC is 10 days after becoming subject to the Texas Unemployment Compensation Act. Both reports and payments are required. Penalties apply if you fail to timely file (on line) the report or any taxes due with the report.
4.Texas Attorney General. Related to the TWC oversight mission: Are you hiring soon any full-time employees (as opposed to true independent contractors)? If so, be mindful of the reporting obligations associated with employees. A short guide is available here on the TWC web site. New hires must be reported within 20 calendar days.
5.Sales Tax. Is the company selling goods or services that are taxed? You may need a sales tax permit and then file the necessary reports and remit the taxes. The Texas Comptroller of Public Accounts has the process on line, making it relatively easy to make sure the taxing authorities get their money.
6.Franchise Tax. Texas has no corporate income tax at the state level, unlike certain other states. It does levy a franchise tax. It does not take much in terms of business activity in the state of Texas to be subject to the franchise tax. For an overview, see these guidelines.
7.Insurance. The business may need insurance. Inform yourself about Texas requirements for worker’s compensation insurance, which may or may not apply to you. Texas does not require an employer to carry workers’ compensation insurance (commonly referred to as “workers comp”), but you need to know the consequences of opting out. You should also consider whether you need a “CGL,” a commercial general liability insurance policy, or any number of policies out there today, such as for data breaches. These are by no means the only types of insurance recommended or even required: consult a professional in the jurisdiction in which you are doing business.
8.Other Stuff. Your company may require more specialized legal counsel to assist with such issues as obtaining permits and protecting your intellectual property under U.S. law (trademarks, copyrights, patents, trade secrets). If you are just starting out with a single person, the founder, running the show, you may not need much. But if you are trusting employee and contractors with confidential information, or they are working with proprietary technology or creating or applying new technologies, you will need solid inventor assignments, NDAs, non-competes (see Part 3 of this series), non-solicitation agreements, to name a few of the most key contractual agreements. Those important agreements, which are not to be confused with what we typically think of as an “employment contract” (see Part 3 of this series), should be signed at the beginning of the relationship; if they are not, more interesting legal issues may arise, and those are far beyond the scope of this general overview (including Part 3 of this series).