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Deciding on the right business structure

Deciding on the right business structure

| Apr 30, 2020 | Firm News |

Business formation is more than coming up with an idea, obtaining financing and seeking customers. Whether your business is conducted from a laptop at home or in a brick and mortar structure, your business structure is vital to business and financial operations. It determines the impact of Texas business law  tax liability, legal liability, management, business continuity, transferability of ownership and operational procedure.

Businesses are formed and operated in several forms in Texas. Each has different requirements:

  • Sole Proprietorship: This is the most common and simplest format. A single individual transacts business without formal organization. An assumed named certificate, also known as a DBA, should be filed with the county clerk where the business is located if it transacts business under an assumed name. This should be filed in counties where business is conducted if there is no business premises.
  • General partnership: This is created when at least two individuals carry on a business for profit. This may be transacted under a partnership agreement. A DBA must be filed in the appropriate county if business is being done under an assumed name.
  • Corporation: A certificate of formation must be filed with the Texas secretary of state. This entity is a legal person managed by directors with limited liability, centralized management, perpetual duration and easy transferability among ownership interests. Shareholders may enter agreements to manage the corporation instead of directors.
  • Limited liability corporation: This requires a certificate of formation filing. This is an entity that has the powers of a corporation and partnership. Members may participate in management and have liability limited to their investment. They may have pass-through tax treatment like partnership members.
  • Limited partnership: This is comprised of one or more general partners and at least one limited partner. It operates in accordance with a verbal or written agreement. A certificate of formation must be filed.
  • Limited liability partnership: A general or limited partnership may choose to register as a limited liability partnership with the secretary of state. This is intended to restrict the liability of its general partners.

A lawyer can provide options that meet needs. They may also help draft documents and filings that comply with legal requirements.