How to choose a business structure

There are several factors to consider when selecting a business structure in Texas such as the ease of transfer of ownership interests, continuity, management and tax liability. The most common structures are limited liability companies, corporations, general partnerships and sole proprietorships.

A limited liability company has features that are similar to both a partnership and a corporation. It is similar to a general partnership but protects the partners from personal liability. A corporation is considered a person in the eyes of the law, and owners are considered shareholders. When two or more individuals form an association with the purpose of conducting business to gain a profit, a general partnership is created. A sole proprietorship is the simplest and most common business structure. In this structure, an individual engages in business activity without a formal organization.

It is necessary to file specific paperwork in order for a business structure to be created and recognized in the state of Texas. A lawyer with a background in commercial and business law could evaluate a business plan or structure and provide legal counsel regarding which business structure is appropriate.

Once a structure has been selected, the lawyer might draw up the necessary forms, certificates and other documentation. Many of these documents must meet particular state requirements in order to be recognized by the state. Inaccuracies or omissions in the documentation could lead to difficulties later on should the business be sold, transferred or restructured. A lawyer may ensure that all documentation meets or exceeds state and federal requirements. After the documentation has been completed, it may be filed with the Secretary of State.

Source: Texas Secretary of State, “Selecting A Business Structure“, November 25, 2014

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