[TX] [TX] Can I set up my LLC so that I don’t lose veteran tax benefits and have my friend be co-owner?

Lexi, Chatbot

I understand you’re looking to register an LLC with one name but have co-owners. Are you looking for guidance on the process of registering the LLC with multiple owners?

Lexi, Chatbot

Are you also interested in understanding the legal implications and responsibilities that come with having co-owners in an LLC?

Lexi, Chatbot

Is there anything else the corporate lawyer should know before I connect you? Rest assured they’ll be able to help with your LLC ownership structure.

Andres Sanchez

Hello, my name is Andres Sanchez. Could you tell me what state you’re in?

Andres Sanchez

Yes, in Texas, you can initially form an LLC with yourself as the sole member and later bring in co-owners by updating the operating agreement to reflect a multi-member structure. This approach offers flexibility while staying compliant with Texas law.

Steps to Transition from a Single-Member to a Multi-Member LLC in Texas:

1. Form the LLC with a Single Member

File the Certificate of Formation with the Texas Secretary of State listing yourself as the only member.

2. Draft an Initial Operating Agreement

Not legally required but recommended to outline your sole ownership and company structure.

3. Amend the Operating Agreement to Add Members

When ready, update it to reflect new members, their ownership percentages, capital contributions, and management roles.

All members must sign for it to be effective.

4. Issue Membership Interests

Under the Texas Business Organizations Code, new members are admitted by issuing membership interests, with existing members’ approval.

5. Update Internal Records

Ensure all documents reflect the new ownership, including the amended operating agreement and any membership certificates.

Andres Sanchez

Yes, but there are serious legal and ethical limits — especially if you’re pursuing veteran-owned business certification (VA’s VOSB/SDVOSB or Texas-level programs).

What You’re Proposing:

You want to:

• Form the LLC under your name (single-member).
• Apply as a Veteran-Owned Business.
• Include a non-veteran “co-owner” privately in the Operating Agreement — without filing them as a member.

Legally — You Can Have Silent Profit-Sharing Partners

Yes, you can:

• Stay the sole legal owner on paper.
• Include someone as a non-member manager or profit-sharing participant.
• Avoid transferring any equity or ownership.

This lets you keep 100% veteran ownership and maintain control for certification purposes.

BUT — Important Limitations:

For federal or state veteran-owned certification:

• You must own at least 51% of the business,
• Control all day-to-day operations, and
• Hold ultimate authority and financial risk.

If the other person acts like an owner (shares profits, has veto power, makes decisions, etc.), it could:

• Disqualify your veteran-owned status, or
• Be viewed as misrepresentation or fraud under government contracting rules.
• Recommendation:

Option 1: Keep It a Single-Member LLC

• You remain the only owner.
• Your partner works under a management or consulting agreement.
• They can earn bonuses tied to profits — not equity.

Option 2: Holding Company Setup

• Create a veteran-owned parent LLC (you own 100%).
• That LLC owns another operating company where your friend can be involved.

Option 3: Certify First, Restructure Later

• Apply for the veteran status now.
• After certification, consult an attorney about restructuring if desired.

Andres Sanchez

Yes, you can structure it this way.

Here's how:

1. Single-Member LLC (You Only)

• File the LLC with only your name as member.
• Apply for veteran-owned exemption (Form AP-204) under Texas Tax Code §171.0005.
• This secures the tax exemption and 100% veteran-owned status.

2. Operating Agreement — With a “Silent Partner” or “Profit-Sharing Manager”

In the Operating Agreement (not filed publicly):

• List only yourself as Member/Owner.
• Give your friend a non-equity economic interest — a contractual right to share profits.
• Assign them a management title (e.g., COO, VP).
• Specify that all major decisions require your approval — you retain control.

Key Legal Terms to Use

Use:

• “Independent Contractor” or “Manager” (not “partner” or “owner”).
• “Discretionary bonus based on company profits.”
• “Profit Participation Agreement.”
• “Phantom Equity” (contractual equity-like payout, not real ownership).

What This Allows:

• You can grant your friend 10–20% of profits (you decide).
• Give them operational input, defined in writing.
• Guarantee pay and protections contractually — but not as an equity owner.

What Not to Do:

• Don’t list them as a member or owner on public filings.
• Don’t transfer membership interest.
• Don’t give them veto power or voting rights.
• Don’t call them “partner” on tax forms or in contracts.

Documents You’ll Need:

• Operating Agreement — confirms your sole ownership and outlines friend’s role.
• Profit-Sharing/Bonus Agreement — defines compensation and profit split.
• Independent Contractor or Employment Agreement — if they’ll be active in operations.

Sample Language (Simplified):

• Section 5.2 – Non-Equity Management Role

The Member may appoint individuals to serve in managerial roles. Such persons shall not be deemed Members or Owners and shall have no voting or equity interest in the Company.

• Section 6.3 – Profit Participation Agreement

[Friend’s Name] shall be entitled to receive an annual discretionary bonus equal to 20% of net profits as determined by the Member. This arrangement is contractual and does not confer ownership or membership rights.

• Section 9.1 – Ownership and Control

[Your Name], the sole Member, retains exclusive control over all material decisions, voting rights, and ownership interest in the Company.

Bottom Line:

• You keep 100% veteran ownership and tax exemption.
• Your friend is protected and compensated like a partner.
• It’s completely legal and compliant — as long as he’s not officially an owner.