If you are thinking about starting a business, there are multiple choices to consider. Your new adventure includes picking and branding your business name, deciding what product or service you will market, and picking a business structure. The entity you select can be simple or complex, depending on your vision for the company.
At Sparks Law, a Texas business formation lawyer can explain the pros and cons of sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Let a knowledgeable attorney assist you in building your company’s future by helping to select a solid foundation.
The simplest business form is the sole proprietorship. This type of business is owned by one person, with profits passed directly to the owner who is also responsible for the company’s debts. Owners do not have to file paperwork with the Texas Secretary of State.
For more complex structures like partnerships, corporations, and LLCs, there are various reporting requirements. Generally, owners should:
New entrepreneurs who plan for additional owners or investors should discuss their choice of entity with a Texas business formation attorney.
A general partnership includes at least two people who decide to operate a business for profit. Although the Secretary of State requires no filing, if the partners choose a business name different from their surnames, they must file an assumed name certificate with the county where the business is located.
General partners use a pass-through tax status, which avoids double taxation, but partners are liable for business debts and judgments. The state does not require a written partnership agreement, but a business formation lawyer in the area should draft one to avoid future misunderstandings.
Limited partnerships must register with the Secretary of State. This entity features at least one general and one limited partner who invests in the business. Limited partners do not manage the business and are only responsible for company debt equal to their invested amount.
When general partners want to limit their responsibility for all the company’s debts, they can file paperwork with the Secretary of State for limited liability. All limited liability partnerships should adopt written partnership agreements drafted by a dedicated attorney, which spell out owners’ rights and responsibilities, profit and loss allocation, and many other guidelines for a new business.
Limited liability companies are owned by members who make capital contributions and are not personally responsible for debts incurred by the company. Contributions can be in cash, property, or services. The value of the contributions is used to determine what percentage of the LLC members own.
Those forming an LLC in Texas should work with a skilled local attorney to prepare an operating agreement. This document can establish percent ownership, how profits are distributed, members’ duties, protocol for admitting new members, tax structure, and what to do when merging or dissolving the company.
Corporations are complex entities, but this is the most appropriate option for companies that wish to go public or raise working capital by selling stock in private placements. A Board of Directors runs a corporation, which is managed by officers who report to the directors. Generally, directors and officers are not liable for the corporation’s acts as long they make business decisions in good faith.
One vital decision you will make as an entrepreneur is what entity to operate under. Different structures are beneficial for different business goals.
If you are ready to begin your entrepreneurial journey, call our office today and speak with a Texas business formation lawyer. The legal team as Sparks Law is prepared to help launch your company in the vehicle best suited for your needs.