What Happens If You Don’t File Your Franchise Tax Returns?

Asset protection is a major reason for forming a corporation or an LLC. Owners are protected from liabilities that arise throughout the course of the operation.

So, if you don't file your franchise tax returns or pay your franchise tax debt, you'll lose your limited liability protection in Texas.

When a company's management fails to file a report, pay a tax, or pay a penalty, the Texas Tax Code holds them personally liable.

This usually occurs when a firm fails to file franchise tax returns. As a result of the failure, the corporation loses its corporate privileges.

This is frequent, especially when a person or a firm controls many businesses. If a corporation's privileges are withdrawn in Texas, the management (officers and directors) are held liable as if the company were a general partnership with no limited liability protection.

As a result, if the firm has a slip-and-fall accident, the company's management is personally liable for the amount the company is unable to pay.

What options do you have?

1. Bring yourself up to date. To get back in good standing and limit your exposure, file past due franchise tax reports, and pay your taxes.

2. When it comes to becoming a member of management, exercise extreme caution. For example, getting the title of "president" may appear to be a promotion, but if your firm is having tax problems, you may be writing personal checks to cover the company's troubles. This is not a good outcome.

3. Resign from your position at the company. Debts are only the responsibility of management.

4. Make a case for the Knowledge Exception. If you can establish that the obligation was either a) made or incurred despite your objections, or b) without your knowledge, you may be able to avoid paying it.

In summary, do not meddle with the Franchise Tax in Texas. The tax is usually a little one, but failure to pay it might result in serious consequences.

Learn more about franchise taxes or contact us by visiting our website swahilifinance.com