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Choosing a Business Entity for Your Texas Small Business

Business entity sign and related terms

There are seemingly countless varieties of business entities to select among when you’re starting a small business. You may feel overwhelmed by the options, unsure of which type of business will provide the greatest income and tax benefits for your particular endeavor. Below, you’ll find a summary of some of the most common types of business entities that you might choose when starting a business. Contact a Houston business law attorney with additional questions or for help in registering or choosing a business entity for your Texas business.

Common business entities in Texas

Sole proprietorship: As you might guess from the name, sole proprietorships are owned by a single individual. There are no filing requirements to create a sole proprietorship, but business owners should file an assumed name certificate, or DBA, with the county clerk. Sole proprietorships do not provide protection from a lawsuit filed against the business, nor do they prevent the business’ creditors from seeking unpaid debts from the owners themselves.

Corporation: Ownership of corporations is divided among shareholders. These shareholders elect a board of directors, who hire corporate officers to manage the business’ day-to-day operations. Corporations provide more protection from liability than sole proprietorships but require more formality in how the business is formed and operated. Corporation leadership must create bylaws, hold annual meetings and provide documentation of these meetings, and file tax returns for the business itself. The income of the corporation is also subject to double taxation, since the company’s profits are taxed, as are the profits paid to shareholders.

Limited liability company (LLC): This is the most commonly-selected business entity among Texas business owners. Owners are classified as members of the LLC, and they choose managers to execute day-to-day operations. Owners are protected from liability incurred by the business, which by default is taxed as a “pass-through” entity (i.e., only once). Owners must file with the Texas Secretary of State to create an LLC, but they do not need to comply with the same stringent formalities as a corporation.

General partnership: Like a sole proprietorship, general partnerships allow two or more business owners to create their business entity without filing with the Secretary of State. Partners share all income of the business according to their share of ownership and are not protected from liabilities incurred by the business. Limited partnerships and limited liability partnerships offer opportunities for business owners to have some protection against debts owed by the business. A Texas business attorney can explain which form of partnership might be best for your needs.

For assistance with a business law related issue in Texas, contact the seasoned, professional, and detail-oriented Houston offices of Your Texas Attorney for a consultation at 713-463-6000.

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