Kicking off your new Texas business: choice of business entity

Kicking off your new Texas business: choice of business entity

An increasingly healthy Dallas-Fort Worth economy may be a good environment to start a new commercial enterprise.

Dallas-Fort Worth’s economic recovery has been endorsed by some heavy hitters. In October 2015, the metro area was ranked number one in the country for commercial-property investment by the Urban Land Institute and PricewaterhouseCoopers LLP in a joint report, according to Bloomberg.

Other positive aspects of the Metroplex cited:

  • Multifaceted job market
  • Company-relocation magnet
  • Expanding economy
  • Diversification of industry from not only the oil industry, but also into medical, technological, educational and financial concerns

Against this backdrop of economic stability, it may be a logical time for area entrepreneurs to kick off new Dallas-Fort Worth-area businesses. One of the first steps is to find legal counsel to help with the many issues of business start-up. At the top of the list is the question of which business entity – sole proprietorship, partnership, corporation, limited liability company, joint venture or another – is likely to best enable attainment of business goals.

Usually the two biggest issues impacting business-entity choice are personal liability and taxation, often followed by control of management. Personal liability is especially a concern if the industry or business plan carries relatively high risk, so choosing an entity that shields individuals from loss becomes more important.

The two most basic entities are the sole proprietorship and the partnership. A sole proprietorship begins when one person goes into business for profit, requiring no public filing or fictitious entity. The proprietor’s personal assets are vulnerable to business liability and taxes are handled on the owner’s personal tax returns. Of course, the owner has sole management power.

A partnership is formed when two or more people go into business for profit together. Again, no public filing is required to form a fictitious entity, although many partnerships draft a partnership agreement to define the terms of the business relationship among the partners. Unless the partnership agreement says otherwise, normally the partners share equally in profits, losses and management responsibility; any one partner can bind the entire partnership; and partners are personally liable for partnership debt and obligations. Partnership taxes are reported on individual partners’ returns.

A variation on the partnership is the limited partnership, which does require state filings to create. General partners function like those in a regular partnership and limited partners are investors who are liable for partnership debt only up to the amounts of their investments and do not participate in management.

The joint venture is partnership-like, but is only created for a group of people to engage in one transaction or project for profit, after which the venture ends.

A corporation is the classic business entity. Corporations require certain public filings as well as internal operating documents, and are often chosen because they normally shield owners from business liability. Corporations are owned by shareholders and managed by directors and officers. The corporation is liable for taxation on business profits, and shareholders are taxed individually on dividends paid out.
A popular modern entity is the limited liability company that shields its owner-members from personal liability, and allows, in most circumstances, for the type of taxation to be chosen. LLCs are either managed by the members (owners) or by nonowner managers. In January of 2010, Texas also allowed another form of an LLC called a Series LLC which can help alleviate the expense and hassle of filing multiple LLCs owned by the same Members.

Available business entities are determined by state law and Texas also allows the limited liability partnership, professional association, professional corporation, business trust, joint stock company, franchise and others.

Once the entity is chosen, legal counsel will help draft operating documents and assist with public filings, licensing and permitting and so on.

From their office in Dallas, the business law attorneys of Bennett, Weston, LaJone & Turner, P.C., represent entrepreneurs across a variety of industries in business formation matters.

2018-08-02T11:57:05-05:00May 4th, 2017|Business Formation, Business Law|
We use cookies and other tracking technologies to improve your browsing experience on our website, to show you personalized content and targeted ads, to analyze our website traffic, and to understand where our visitors are coming from. By browsing our website, you consent to our use of cookies and other tracking technologies. Ok