When starting a business in Texas, one of the most important considerations is determining what legal structure your company will have. The structure you choose will affect all aspects of operation, including how much taxes you pay and how much personal liability you will have.
Most common business structures
The three most common business structures are sole proprietorship, partnership and limited liability corporation, commonly called an LLC.
- A sole proprietorship is exactly what it sounds like: one individual owns the company. Personal and business assets are not separate.
- Partnerships allow two or more people to form a business in either a limited partnership or a limited liability partnership structure.
- An LLC combines the best of corporation and partnership business formation structures and limits the owners’ liability in case of bankruptcy.
Corporation structures
Several structures are available to entrepreneurs who want to form corporations. The simplest is a C corp, an entity that is separate from its owners and offers strong protections against liability. An S corp is designed to avoid double taxation that occurs with C corps. Other more complicated structures include B corps and close corps. Charity, religious and similar groups typically operate as nonprofit corporations, which allows them to file for tax-exempt status. Another lesser-used structure is a cooperative, which is owned and operated by those using its services.
Selecting the best business structure for your needs
Business formation can be a tricky process. While entrepreneurs often focus on the operational side of things by crafting a sound business plan and attracting investors for their operations, paying heed to the structure can make a different in profits. Combining business structures can be a solution for some entrepreneurs; for others, needs change over time. In such cases, you should carefully consider what your future needs will be and act accordingly. A business law attorney may be able to offer insight throughout the process.
