Business Lawyers Blog
Selecting a legal structure is one of the first decisions you must make when starting a new business in Texas. There are a number of options, and it is easy to become confused if you do not have experience in this area. The Texas start-ups and financing lawyers at Structure Law Group can help you assess your needs and choose a structure that will set you up on a path to success.
The Risks of Sole Proprietorships and General Partnerships
The simplest type of business structure is a sole proprietorship, which essentially has no formal structure. A sole proprietor is an individual who operates the business on their own without the liability protection of a separate legal entity. When two or more individuals operate a business in this manner, it is called a general partnership.
The obvious downside to these businesses is that the owner or owners are personally liable for any business debts. It can also be difficult for unincorporated firms to attract outside investment or debt financing. That is why most sole proprietorships and general partnerships are small businesses that never intend to expand past what the owners can do personally.
Corporations
A corporation is a distinct legal entity that exists separately from its shareholders (even if there is only one shareholder). Corporations offer the strongest form of liability protection for shareholders. But they also entail significant legal formalities, such as having a board of directors, issuing stock, and conducting annual shareholder meetings. A traditional C-corporation is also subject to “double taxation,” meaning profits are taxed once at the corporate level and then again if shareholders receive any dividends.
Limited Liability Companies
A Texas limited liability company (LLC) serves as a middle ground between a corporation and a sole proprietorship or general partnership. An LLC provides liability protection for the individual members (owners). But the IRS generally disregards the LLC structure for income tax purposes, so any income or losses from the business “pass through” to the individual members and their respective tax returns.
Limited Partnerships
Unlike a general partnership, where each partner is personally liable for any business debts, it is possible to structure a Texas business as a limited partnership, where there is a mixture of general and limited partners. The limited partners are essentially passive investors, similar to the shareholders of a corporation, while the general partners are responsible for the day-to-day operations of the business. The limited investors’ liability is limited to their investment in the business.
Contact SLG Today
Selecting a business structure is not just about what will be most convenient during your start-up phase. You also need to consider how your business will attract investment and grow over time. So before making any decisions, you should consult with a Texas business attorney at the Austin office of Structure Law Group. Call SLG today at (512) 881-7500 or contact us online to schedule a consultation.