Veterans are accustomed to operating within systems. There is a mission, a chain of command, defined responsibilities, standards, and accountability when something goes wrong.
Then you start a business.
Suddenly, there may be no chain of command, the responsibilities are whatever you and your business partners decided over a conversation, and the agreement everyone thought they had can disappear the moment money, ownership, or control becomes an issue.
I understand that transition personally.
Before becoming an attorney and founding Vertalis Legal Counsel, I served in the United States Air Force, including a deployment in support of Operation Enduring Freedom. I worked on MQ-1 and MQ-9 aircraft, later worked overseas as a civilian contractor, became a lead quality engineer, worked in corporate project management, and eventually became an attorney.
Today, part of my practice is working with veteran entrepreneurs and veteran-owned businesses.
That background matters to me because veterans do not need a lawyer simply because they are veterans. They need lawyers who understand that veteran-owned companies can encounter opportunities, programs, ownership requirements, contracting rules, and growth decisions that deserve specific attention.
Starting a Veteran-Owned Business in Texas
The basic legal questions facing a veteran entrepreneur are similar to those facing any founder:
- Who owns the business?
- Who controls it?
- Who can spend or borrow money?
- What happens if there are multiple owners and they disagree?
- Who owns the intellectual property?
- What happens if someone wants out?
- What contracts does the business need?
- What happens when a customer does not pay?
For Texas veterans, however, there can be another layer.
Texas provides special treatment for certain qualifying new veteran-owned businesses. Among other requirements, the business generally must be formed or organized in Texas and be 100 percent owned by one or more honorably discharged veterans. Qualifying businesses may receive an exemption from certain formation fees and Texas franchise tax during an initial five-year period.
That creates an important planning issue.
Taking on a non-veteran co-owner or investor may make perfect business sense. But changing the ownership structure can also affect benefits or certifications tied to veteran ownership.
The legal structure should therefore reflect where you expect the company to go, not simply where it is on the day the LLC is formed.
Veteran-Owned Does Not Always Mean the Same Thing
One source of confusion is that there is no single veteran-owned-business percentage that applies to every program.
For example, Texas new veteran-owned business benefits generally require 100 percent veteran ownership. Federal SBA Veteran Small Business Certification, commonly called VetCert, generally requires at least 51 percent veteran ownership and control.
For a Service-Disabled Veteran-Owned Small Business, or SDVOSB, the SBA generally requires at least 51 percent ownership and control by one or more qualifying service-disabled veterans.
Those differences matter when structuring a company.
A business might qualify under one program and not another. A capitalization decision, new investor, transfer of membership interests, or amendment to an operating agreement can potentially affect eligibility.
That is why veteran business owners should think about certification and ownership structure together.
Your Operating Agreement Can Matter More Than Your Ownership Percentage
It is easy to focus on percentages.
Veteran owns 51 percent. Investor owns 49 percent. Done.
Not necessarily.
Federal veteran-business certification also focuses on control. SBA eligibility generally requires the qualifying veteran owner or owners to control the business, not simply hold the appropriate percentage of its equity.
That means the operating agreement deserves careful attention.
Consider a veteran who owns 51 percent of an LLC but agrees that major business decisions require unanimous approval. Or suppose the 49-percent investor receives extensive veto rights over hiring, contracts, borrowing, distributions, or strategic decisions.
The capitalization table may say the veteran owns the company. The governance provisions may tell a different story.
Before accepting outside investment or entering into a business partnership, veteran owners should understand exactly what rights they are giving away and whether those rights affect a certification or contracting strategy.
Build the Business for the Mission You Actually Have
Not every veteran-owned business wants government contracts.
That is perfectly fine.
Some veterans are building technology companies. Some own construction businesses. Others are consultants, professional-service providers, logistics companies, manufacturers, real estate businesses, or local service companies.
The legal infrastructure should fit the business.
At a minimum, growing companies should consider whether they have addressed:
- ownership and decision-making through a properly drafted operating agreement
- intellectual-property ownership
- customer and vendor contracts
- independent-contractor and employment relationships
- confidentiality and proprietary information
- authority to borrow money or sign major contracts
- personal guarantees
- procedures for bringing in additional owners
- buyouts, transfers, death, disability, and owner departures
- disputes between founders
Veterans tend to understand the value of planning for contingencies. Business documents serve a similar function. You do not write an operating agreement because you expect the owners to fight. You write it because the consequences are far greater if they fight without one.
What About VOSB and SDVOSB Certification?
Veteran-owned companies interested in federal contracting should understand the SBA Veteran Small Business Certification program, commonly called VetCert.
SBA certification allows qualifying SDVOSBs to compete for federal sole-source and set-aside opportunities, while certified VOSBs may pursue certain opportunities with the Department of Veterans Affairs.
Certification is only part of the process. Federal contractors may also encounter SAM registration, NAICS classifications, representations and certifications, teaming agreements, subcontracting arrangements, government solicitations, and eventually the contractual requirements that come with performing government work.
The goal should not simply be to obtain another logo to place on the company website.
The goal is to structure the company so that, if a valuable opportunity appears, the business is prepared to pursue it without discovering that an avoidable ownership or governance issue stands in the way.
Veteran-Owned Businesses Still Need Ordinary Business Law
There is another mistake I see in discussions about veteran entrepreneurship: nearly everything focuses on certifications, grants, government contracts, and veteran programs.
Those opportunities matter, but they are not the business itself.
Veteran entrepreneurs still sign leases. They still hire employees. They still use independent contractors. They still negotiate customer agreements. They still bring in partners. They still encounter customers who refuse to pay. They still face liability. They still buy companies, sell companies, raise capital, and sometimes have disputes with the people they went into business with.
A veteran-owned business ultimately needs the same thing every successful business needs: legal infrastructure that allows the owner to operate, grow, make decisions, and manage risk.
Counsel Who Understands Where You Are Coming From
I built Vertalis around the idea that growing businesses often need ongoing legal judgment long before they need traditional litigation.
For veteran entrepreneurs, there is another dimension to that relationship.
I understand the military background because I lived it.
I understand the transition into civilian organizations.
And I understand what it is like to take the experience gathered in the military, corporate environments, and professional life and turn it into something you own.
That does not mean veteran business owners need a different body of business law. It means they deserve counsel who understands the context in which they are building.
Whether you are forming your first company, reviewing an operating agreement, considering a new partner, pursuing veteran-owned certification, negotiating a major contract, or preparing the company for its next stage of growth, the right time to address the legal structure is usually before the issue becomes urgent.
At Vertalis Legal Counsel, we work with veteran entrepreneurs and growing businesses to design the legal structure behind the company.
If you are building a veteran-owned business and want to discuss its legal foundation, ownership structure, contracts, or growth plans, schedule a consultation with Vertalis Legal Counsel.