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What legal entities can be used when forming a new business?

On Behalf of | Sep 17, 2021 | Business Formation |

Forming a new business in Texas can be an exciting time, but it requires you to fulfill several necessities. One of the matters you must address to operate legally is choosing a business structure. Deciding on the appropriate one is based on factors such as the complexity of your business structure, liabilities, and taxes.

Understanding the legal entities you can use when starting a new business

When you’re choosing a legal business structure, four of the most common types include sole proprietorship, partnership, limited liability company and corporation. Within each of these is structures is a set of legal parameters that you must follow to stay compliant with the law.

Sole proprietorship and partnership

Opening a business by yourself is an easy way to get started. In this situation, you may want to conduct business as a sole proprietorship. It can be set up easily with inexpensive license fees. If you’re operating a business with more than one individual, forming your business as a partnership may be a better option. It is also easy to start. However, you will be required to file federal tax form 1065.

LLCs and corporations

Utilizing a limited liability company, or LLC, is primarily done to provide you with liability protection. Using this business formation structure also allows you to pass through earnings and losses directly to each business owner. You will list your income from the LLC on a personal income tax form when filing.

Forming a corporation is another popular business structure you can use. Within this category, several types of corporations can be formed, ranging from C and S corporations to B and nonprofit corporations.

Choosing a proper legal business structure for your company is usually straightforward and takes little time to set up. However, you do need to thoroughly consider your goals for the business in order to choose the proper structure.