Entity selection: The first step to starting a new Texas business

Starting a business is a time of excitement, hopeful expectations and turmoil. Coming to the decision to purchase an existing business or start a new venture is an entire process on its own and may include the following:

  • Establishing a business plan
  • Identifying a business need for the proposed service or product
  • Examining the financial feasibility of the venture
  • Analyzing the marketability of the proposed service or product

Upon making the decision to get the ball rolling, the first step needed to establish a firm foundation from which to start is selecting a business entity most appropriate for the circumstances.

Types of Texas entities

In Texas, there are many types of business entities from which to choose. Following are brief explanations of a few business formation choices in Texas:

  • Sole proprietorship: An individual intending to work alone - without any co-owners or partners - can operate as a sole proprietorship. This is an easy way to operate and requires few formalities. However, the person's personal assets may not be protected in the event of a lawsuit or other legal action against the business.
  • Corporation: A corporation is an independent entity - separate from the individuals who own and operate it - and protects those individuals from liability. There is a formal process required when forming a corporation, which includes filing certain documents with the Texas Secretary of State. Depending on the number of shareholders, the corporation may be subject to double taxation or may be treated as a pass-through entity if "S" corporation requirements are met.
  • Partnership: Texas partnerships require fewer formalities than do corporations. Depending on whether a general partnership, limited partnership or a limited liability partnership is formed, partnerships offer varying levels of liability protection for the partners from business disputes.
  • Limited liability company: A limited liability company (LLC) in Texas is like a hybrid, combining the limited liability of a corporation and the pass-through tax treatment of a partnership or "S" corporation. The filing requirements are formal but the entity can be more flexible than other corporate forms.

This list is not exhaustive and does not include professional entities or entities specially created for families. The choice depends on a number of factors - such as taxation, limiting liability, management style and the level of formality sought - and requires careful legal and taxation analysis when deciding which form to use.

Next steps

Upon selecting the best business entity for the venture, there are many additional steps needed before business owners open their doors. Each industry has its own rules and regulations, which may require the following:

  • Registering with governmental agencies
  • Obtaining permits and licenses
  • Reporting requirements

At every step of the way, an experienced business lawyer can help. Consult an experienced Texas attorney for assistance with setting up, growing and maintaining a successful business.