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The possible benefits of creating a separate entity

| Feb 17, 2023 | Business Formation And Planning, Business Law And Litigation |

There are many ways in which you can organize your Texas company. Unless you elect to choose a different entity, your business will function as a sole proprietorship. While this may be the most convenient way to run an organization, it is not always the best way to do so.

Separating your company from yourself

The process of creating a limited liability company (LLC) or a corporation is fairly straightforward. All you need to do is submit business formation documents to the state where the firm is headquartered stating that you would like to operate as such. After your request to operate as an LLC or corporation has been accepted, the company is now an entity that is legally separate from yourself. You will also need to submit paperwork to the IRS declaring that your company has elected to be treated as a separate entity.

The potential benefits of your decision

Creating a separate entity means that you are less likely to lose personal assets for something that your company has done. Generally speaking, if a customer, employee or vendor obtains a judgment against your company, only the assets of the company can be used to satisfy the judgment. Therefore, you minimize the risk of losing your personally owned property. However, this may not be true if a judgment is related to an obligation that you personally guaranteed or if a judge finds that there is reason to pierce the corporate veil.

Choosing a structure for a business is typically one of the most important decisions that an owner will make. In many cases, this decision is made while creating a business plan. However, you may be able to change your company’s structure after it begins operations.