There are numerous decisions that Texas entrepreneurs must make when they start businesses, and one vital decision is the legal structure. This decision affects the amount the individuals or companies owe on taxes and has an effect on how they are liable for the businesses debts.
Sole proprietorships are the simplest structures and usually involve only one entrepreneur having total control over an enterprise and making all of the decisions. The business earnings are taxed just once and are included with the entrepreneur’s personal income taxes, along with business expenses. However, the entrepreneur is responsible for the business’s liabilities, putting personal resources at risk.
A partnership is an enterprise that two or more owners. General partnerships allow the partners to manage the business, but they assume liability for the debts and obligations. In limited partnerships, there are general and limited partners, and the limited partners do not control the company and are not liable for its debts. Each general partner is responsible for a share of the profits or losses, which are passed onto their personal income taxes.
A corporation is a separate entity from the owners, which makes its structure more expensive and complex, but the owners are not personally liable for its debts. Corporations are established under the state laws, and there are more tax requirements because of this
S corporations provide tax and liability benefits to the owners. Profits and losses are transferred to the shareholders’ personal income taxes. Additionally, the owners are not liable for the debts of the businesses.
Choosing a business structure might not be easy. Many individuals who are new to entrepreneurship may start small and transform their businesses into partnerships or corporations later. Those who need legal help along the way could contact attorneys.