Selecting a Business Structure
Selecting a business structure that is best for you and other partners/investors should be made with a licensed and experienced Texas attorney, with consultation with an accountant, and taking into consideration issues regarding tax, liability, management, continuity, transfer-ability of ownership interests, and formality of operation.
Generally, businesses are created and operated in one of the following forms:
- Sole proprietorship: The most common and the simplest form of business is the sole proprietorship. In a sole proprietorship, a single individual engages in a business activity without necessity of formal organization. If the business is conducted under an assumed name (a name other than the surname of the individual), then an assumed name certificate (commonly referred to as a DBA) should be filed with the office of the county clerk in the county where a business premise is maintained. If no business premise is maintained, then an assumed name certificate should be filed in all counties where business is conducted under the assumed name.
- General partnership: A general partnership is created when two or more persons associate to carry on a business for profit. A partnership generally operates in accordance with a partnership agreement, but there is no requirement that the agreement be in writing and no state-filing requirement. If the business of the partnership is conducted under an assumed name (a name that does not include the surname of all of the partners), then an assumed name certificate (commonly referred to as a DBA) should be filed with the office of the county clerk in the county where a business premise is maintained. If no business premise is maintained, then an assumed name certificate should be filed in all counties where business is conducted under the assumed name.
- Corporation: A Texas corporation is created by filing a certificate of formation with the Texas Secretary of State. The Secretary of State provides a form that meets minimum state law requirements.
A corporation is a legal person with the characteristics of limited liability, centralization of management, perpetual duration, and ease of transfer-ability of ownership interests. The owners of a corporation are called “shareholders.” The persons who manage the business and affairs of a corporation are called “directors.” However, state corporate law does provide for shareholders to enter into shareholders’ agreements to eliminate the directors and provide for shareholder management. Choosing the best management structure for your corporation is a decision you make with the advice of an attorney licensed to practice in Texas. The Secretary of State cannot assist you.
An “S” corporation is not a matter of state corporate law but rather a federal tax election. A for-profit corporation elects to be taxed as an “S” corporation by filing an election with the Internal Revenue Service. Please contact the IRS or competent tax counsel regarding the decision to be taxed as an “S” corporation and the requirements for filing the election. This is not a matter with which the Secretary of State may assist.
- Limited Liability Company: A Texas limited liability company is created by filing a certificate of formation with the Texas Secretary of State.
The limited liability company (LLC) is not a partnership or a corporation but rather is a distinct type of entity that has the powers of both a corporation and a partnership. Depending on how the LLC is structured, it may be likened to a general partnership with limited liability, or to a limited partnership where all the owners are free to participate in management and all have limited liability, or to an “S” corporation without the ownership and tax restrictions imposed by the Internal Revenue Code. Unlike the partnership, where the key element is the individual, the essence of the limited liability company is the entity, requiring for its creation more formal requirements.
The owners of an LLC are called “members.” A member can be an individual, partnership, corporation, trust, and any other legal or commercial entity. Generally, the liability of the members is limited to their investment and they may enjoy the pass-through tax treatment afforded to partners in a partnership. As a result of federal tax classification rules, an LLC can achieve both structural flexibility and favorable tax treatment. Nevertheless, persons contemplating forming an LLC are well advised to consult a lawyer licensed in Texas.
A limited liability company can be managed by managers or by its members. The management structure must be stated in the certificate of formation. Management structure is a determination that is made by the LLC and its members.
- Limited Partnership: A Texas limited partnership is a partnership formed by two or more persons and having one or more general partners and one or more limited partners. The limited partnership operates in accordance with a partnership agreement, written or oral, of the partners as to the affairs of the limited partnership and the conduct of its business. While the partnership agreement is not filed for public record, the limited partnership must file a certificate of formation with the Texas Secretary of State.
- Limited Liability Partnership: In order to limit the liability of its general partners, a general or limited partnership may opt to register as a limited liability partnership.
Regardless of which business structure you use, be sure to use the best registered agent service for your company’s service needs.
”So far I have been very pleased with the service provided by your law firm.”L. Srubasmbq food concepts, inc
”Very easy process and professional.”D. BolandManey Wire & Cable-Southwest, Inc.
”Andy Traub Law Office has provided excellent information and customer service.”Mary KrombackIRI West, LLC
”I was impressed with how much additional information he provided to help me with my business. Thank you!”H. Ralston100th Monkey Mushroom Farm
”I am pleased with the quality of service and the expedience of concordance received and forwarded to our business address.”C. CurranThe Art of Weddings, LLC
”Very prompt on sending letters from state. Highly recommend”A. ReddyAravinda Pulakurthi MD PA
”Andrew Traub and his team serve as an exceptional Registered Agent through performing highly skilled and efficient duties on behalf of their clients.”A. FraverChampion Net Systems LLC
”We couldn’t be happier with Mr. Traub’s services. We are located in Michigan and have several companies in Texas that required a local registered agent. Mr. Traub has exceeded our expectations. I can highly recommend him. ”Heather DrouinEenhoorn LLC
”Hello, Great Registered Agent! Replies to all of my inquiries promptly.”K. ElemamTour Egypt
"Andrew, you please me to no end. Thank you for the stellar service. I spent probably four hours researching registered agents. I knew what they were, as I've formed three companies here in Delaware. But I needed a Texas registered agent. So I started looking and comparing. Andrew, it was... read moreStephen Worden
”Sends out useful information in newsletters, and keeps us up to date on any issues that might be going on in Texas that would effect our business.”D. MontgomeryFMC Transport Inc.
I have only been with Andrew Traub for 2months, but I needed to contact him twice in that time, and I was amazed with how quickly he responded to me. There were cheaper registered agents online, but I feel you get what you pay for, and with this company, I... read moreRobin Ventura
”I have enjoyed the messages and the interesting info sent to us by our registered agent. The previous agent I had never kept in touch nor did he tell us when he was no longer going to be our registered agent. We found out the hard way.” It is a... read moreS. LindsaySmithco Construction, Inc.
”services excellent”N. ReyesREYAM INC.
”The Texas Registered Agents services have been excellent, kind, prompt, and very resourceful. Thank you for all your help.”d. padillaATX CINEMA LLC