What are my options with business formations in Texas?

On behalf of Brewer, Pritchard & Buckley, P.C. posted in business formations on Thursday, May 17, 2018.

For Texans who are planning a business start-up, one of the most important choices that must be made is the business structure. There are multiple alternatives when forming a business and knowing the benefits and potential drawbacks of each of them is critical to making the right selection. The first step is knowing the different forms available. There are generally six choices: sole proprietorship; general partnership; corporation; limited liability company; limited partnership; and limited liability partnership.

A sole proprietorship is the easiest business form. An individual will engage in the business and a formal organization will not be necessary. People might want to run the business under an assumed name. If that is the case, there must be an assumed name certificate. A general partnership is when two or more people join in a for-profit business. There will be no agreement in writing and it is not necessary to file with the state. The rules for an assumed name are the same as for a sole partnership.

With a corporation, there will be a filing for a certificate of formation with the secretary of state in Texas. There will be a form provided that will meet the minimum requirements under state law. With a corporation, there are shareholders. Those who manage the business are called directors. This has features of a corporation and a partnership. The LLC can be structured in different ways to suit the ends of the business owners. It can be like a general partnership or a limited partnership. The entity itself is the key with the owners viewed as members. Liability for the members will be limited based on how much they have invested.

A limited partnership has two or more people with one as a general partner and the other or others limited partners. There will be a written or oral partnership agreement as to how the business is handled. There is no public filing, but there must be a certificate of formation with the secretary of state. Finally, a limited liability partnership will limit liability for the general partners. This too needs a form filing with the secretary of state.

When starting a business, one of the most important decisions will be the way it is structured. Knowing the alternatives for business formations is critical from the start as it will influence everything related to the business such as selling it, expanding, merging with another company, tax issues, adhering to the law and much more. Having assistance from a law firm that specializes in business is one of the foundational factors in success or failure and should not be ignored.

Source: sos.state.tx.us, “Selecting A Business Structure,” accessed on May 17, 2018