Forming a company in Texas starts by making informed decisions. You want to create a corporate structure that’s compliant with Texas law — all while you navigate administrative and regulatory processes. You also want to make sure that any risks, agreements, and relationships central to your business are managed properly.
There are four main types of business entities in the State of Texas:
- Sole proprietorship.
- Corporation.
- Limited liability company (LLC)
- Partnership.
Each of these entities has its advantages and disadvantages, which may make it more suitable for your specific business needs.
Questions to Ask Before Deciding on an Entity Structure
You should discuss the following questions with a business formation attorney before you decide on a specific structure:
- How many owners will the business have now and in the future?
- Are ownership transitions (additions and departures) more likely to occur?
- Does your industry require a specific entity type (such as a PLLC or PA)?
- What kind of business and personal assets do you need to protect?
- Do you want to be taxed personally for business income (what’s referred to as “pass-through taxation”) or separately?
- Will you be looking for outside investors?
- Will you be operating in multiple states?
- Do you have the resources and/or are willing to maintain formal record keeping and compliance requirements?
- Is it important to keep business continuity if an owner leaves or dies?
An attorney with experience in entity formation can help you look at your options based on your specific needs, preferences, and long-term vision.
Factors That Can Influence Entity Formation in Texas
Before you decide on a specific entity structure, you need to consider the following factors:
- Control — This is an important factor when it comes to forming a business entity, especially if business owners are involved. A sole proprietorship will give you the most control, while a corporation must answer to shareholders who elect a board of directors that will manage everyday operations.
- Liability — Your business structure will determine the extent of your personal liability for any debts and obligations attached to the business. Some structures will give you more protection against personal liability, but it’s often proportional to the amount of control you have over the company.
- Taxes — The structure of a business determines how it will be taxed. Many business structures (such as sole proprietorships, limited liability companies, and S corporations) use a pass-through system of taxation where the business owner doesn’t pay separate tax for the company. It’s passed to the owners, who pay taxes on the business’s profits through their individual tax returns.
- Administration — The complexity of administration increases with the complexity of the business structure. Sole proprietorships and partnerships require the least paperwork, while corporations have stricter reporting obligations and require more paperwork to be filed when forming and running the business.
Be sure to speak to a qualified attorney for more information.
How an Entity Formation Lawyer Can Help You Structure Your Business
A business attorney can give you advice on a number of issues while you’re forming your business. Some of them include the following:
- Choosing the right structure for your business — If you want to build a strong foundation for your business and its future growth, you need to structure it properly. A business formation attorney can give you advice on the pros and cons of every structure that’s available to you. It will protect the interests of both you and your business.
- Industry-specific advice — A business lawyer can give you advice on any issues that are specific to the industry you’ll be operating in and on any product or service you’re offering. This can include any help you need to understand any regulations that apply to your industry (including any necessary licenses and permits).
- Drafting and negotiating legal documents — Forming a business entity often involves preparing a variety of documents. This can include business negotiation papers, intellectual property registrations, and other commercial documents. A qualified attorney can help you to accurately draft these documents, so you don’t have any problems later on.
- Understanding your tax obligations — Not understanding your tax obligations can result in significant tax liability later on. Taxation is a complicated area, so working with a business attorney and a qualified accountant will make sure you stay in compliance with current tax laws.
- Employment laws — If you hire employees, you need to be in compliance with a number of employment laws and regulations. A business attorney can help you understand and navigate the complexities of these laws. They can also help you draft employment contracts that can protect you and your employees.
If you’re looking for an attorney who can help you with business formation in Texas, be sure to reach out to Gale Law Group.