If you’re thinking of launching a business in Texas, one of the first things to determine is which business structure best fits your needs. It’s also important to research business laws to ensure that you adhere to those that are relevant to your company. For many startups, a basic LLC structure is useful. This post provides an overview to help you determine if it’s right for your business.
LLC stands for: limited liability company. If you are launching a startup that is seeking investors, you might want to consider registering as a corporation rather than an LLC. Since LLCs cannot issue stock, this structure might place your company at a disadvantage if it needs to acquire capital. However, if you are not seeking investors and want to protect your personal assets, an LLC might be a good fit for your business.
Business laws to protect your assets if a lawsuit occurs
One of the main reasons that many Texas business owners choose to register as an LLC is that this structure provides protection of personal assets if someone were ever to file a lawsuit against their companies. While it’s common for small business owners to register as LLCs, this structure is available to any size business, including a large corporation. Another benefit of registering under this structure is that it provides tax flexibility.
There are several ways to tax an LLC. This can occur as a sole proprietorship or partnership, or other options, as well. There are also no restrictions on the number of members you can have as an LLC, which is different from structures that limit shareholders.
If a legal judgment imposes on your business
As mentioned earlier, one of the greatest benefits of registering your business as an LLC is personal asset protection. If someone sues your company and the judge issues a judgment against it, you will have protection of your personal assets, meaning if your company cannot afford to pay the court-ordered amount, the court cannot use your personal assets to bridge the gap.
LLC versus sole proprietorship
If you are the sole owner of your business, you might wonder whether registering as an LLC would benefit you more or less than a sole proprietorship. A potential downside to LLC versus the other is that it can be more expensive since you might incur annual reporting and franchise tax fees.
Registering as a sole proprietor might initially be less expensive. However, remember that the LLC protects your personal assets. You would not have this same protection under sole proprietorship. Therefore, in the long run, an LLC might wind up costing less if you consider the possibility of losing personal assets to a lawsuit as a sole proprietor.