Starting a new business can be exciting, but it can also be overwhelming. Texas has four primary types of business entities: sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Weisinger Law Firm makes obtaining the proper legal documents and choosing the proper entity stress free. Our motto “Peace Through Planning ®” translates well into the world of business. We walk you through the entire process so you get peace of mind knowing you have selected the best form of business structure to protect your investment. Call us today to set up a free consultation and get your business started!
sole proprietorship & general partnership
Starting a business as a sole proprietor is as easy as putting a sign in your front yard and offering your services for hire. If you and a friend do this, you have created a partnership. This is the easiest way to go into business. However, it is also the most dangerous. Most businesses fall into this category by default rather than choice. When operating in this manner, there is no separation between the individual and the business. Poor business choices or just plain bad luck can cause you to lose both business and personal assets.
While fraught with the most personal liability, it is also the easiest to set up. Most businesses that have employees, or do work in sensitive or dangerous areas, should consider a business structure with more protection for the business owners.
Limited Liability Companies (LLCs) are very common today and are by far the most popular choice for small businesses. LLCs were created with the idea of combining the best of both worlds – the liability protection of a corporation combined with the ease of use of a partnership. To a large degree the LLC has been very successful at reaching this goal. LLCs, when operated correctly, offer the same degree of protection as a corporation. The key concept is to separate the business from the individual. LLCs have a formal creation process and must be registered with the state. Instead of a corporation’s bylaws, the LLC uses a company operating agreement to define and explain how the business is operated.
A major difference between Corporations and LLCs is that LLCs do not have stock, but rather have “ownership interests”.. The LLC needs to be clearly separate from the operators, with clear records and procedures. To maximize liability protection, the LLC should mimic corporate procedures and conduct its operations in a formal manner.
There are two types of partnerships that offer liability protection: limited partnerships and limited liability partnerships. Limited partnerships typically have one partner with general (personal) liability and at least one other partner with limited liability. A limited partner typically is not liable for damages caused by the company. This can be a good fit for temporary arrangements or projects with a set end date. They can be established quickly with no state filing requirement. Limited liability partnerships are typically used by professionals and are being replaced by PLLCs (Professional Limited Liability Companies). Limited liability partnerships by their very nature have written agreements and are usually registered with the state.
Corporations are a good fit for larger companies and companies that are going to be generating capital through investors. They have a variety of reporting requirements and must be operated in a formal manner. Corporations, when operated correctly, offer the most secure liability protection to its owners and investors. Investors are attracted to the standard requirements and disclosures that a company will provide in addition to the liability protection. Corporations can issue various classes of stock that allow ownership and profit sharing without diluting management or control. The majority of new business owners should only consider a corporation if they have either the experience or infrastructure to operate one successfully.