If you’re thinking of joining the ranks of Texas business owners, you will first want to review state and federal laws that govern privately owned companies. A primary issue is taxes. Another is liability. When you register your company, it’s important to choose the business structure that best fits your company’s needs. You can change the structure later if you determine that the initial one you chose is no longer right for your business.
This post provides a basic overview of the most common types of business structure. If you have questions or do not understand a specific concept, you shouldn’t hesitate to seek clarification. Choosing the right structure at the start gives your company solid ground to stand on as you shape it into a successful Texas business.
If you do not register under a particular business structure, you become a sole proprietor
The most basic type of business structure is sole proprietorship, which is what you are if you do not formally register under another structure. If your goal, currently, is to test the waters and see how your business fares, and your idea carries low risk, then sole proprietorship might be all that you need.
The main issue that distinguishes sole proprietorship from other business structures is that there’s no separation of assets and liabilities, meaning your personal assets and liabilities and business assets and liabilities are one and the same. The important thing to understand here is that you can be personally accountable for business debt. While you have complete control over your company, you cannot sell stock as the sole proprietor.
An LLP protects each business partner from debts against the partnership
If you are going into business with one or more people, sole proprietorship will likely not be the structure you choose to register your company. Instead, an LLP might be the way to go. LLP stands for “limited liability partnership.” Under this category, no individual partner can be accountable for the actions of another partner.
Registering as a corporation gives you the strongest protection
While this is the most expensive type of business structure, it also provides the strongest protection to you, as a Texas business owner. In a corporation, your personal finances and assets are entirely separate from your business. Rather than filing taxes through your personal tax returns, a corporation pays taxes from its profits. If you register under this business structure, you can also raise funds for your company by selling stock. Those who purchase stock become shareholders in your business.
There are several categories of corporation status. It’s best to carefully review each one to determine which one would work best in your case. Are you launching a nonprofit organization, or do you need a structure that fits a small group of shareholders who want to operate without a board of directors? Each type of corporation varies slightly from the rest. Seeking additional business law guidance is a good idea if you’re unsure which business structure best fits your company’s needs.