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Choosing a business structure

On Behalf of | Oct 25, 2022 | Business Formation |

One of the most basic steps in starting a business in Texas is deciding on the business structure. There are many different ways to structure a business. The best approach depends on the number of people involved and the philosophy behind the business. Making the right decision about the structure is the first step for entrepreneurs to start bringing their dreams to reality.

Types of business structure

There are two broad types of business structures that should be considered in the business formation stage. One is the sole proprietorship/partnership model. In this model, the owner or owners have complete control and can make all relevant decisions. They can hire, fire, and make financial contributions and disbursements. However, they are also responsible for all of the debts that the business takes on.

There are also corporations and limited liability companies (“LLCs”). Corporations and LLCs can have several names, sizes, and levels of complexity. But in general, these entities have their own legal identity separate and apart from their founders. They reduce the liability that a founder has. As separate entities, corporations and LLCs are often taxed separately (subject to some variations) and have to meet a number of requirements that sole proprietorships and partnerships do not have to meet.

What to consider

Business owners have to consider a number of factors when choosing their business structure. They need to take into account the size of the business and the amount of risk that they are comfortable taking on. Smaller businesses and businesses with small potential liabilities may not feel the need to be a corporation or LLC at first, but might choose to convert  later as the business grows.

Business owners also have to keep in mind the specific field that they are in. If they need to hire many officers and have several different branches, a corporate or LLC structure may be more effective. It will allow them to separate their personal lives from their businesses and create a business that has unlimited room for growth.