Choosing a Business Form for Your Start-Up
When you’re ready to start a business, one of your first decisions is whether to form a sole proprietorship, partnership, limited liability company (LLC), or a corporation. The best choice isn’t always clear and there’s no right or wrong choice for every Texas business venture. At Doré Law Group, our attorneys will help you make the choice that best meets your needs today, and your plans for future business growth.
Is a Sole Proprietorship or a Partnership right for you?
For many, the least expensive initial choice is either a sole proprietorship or, if more than one owner is involved, a partnership. If you are a small service business unlikely to be sued and you won’t be borrowing money through the business, you may want to look at this option. Even though sole proprietorships and partnerships are relatively simple, legal counsel is still important. For example, in most instances, as a sole proprietor or a partner, you will be held personally liable for the debts and obligations of the business. For this reason alone, most attorneys do not recommend this approach. However, these are the only forms of entity which will not be subject to the upcoming margin tax, which starts up in 2007. See us for more detail on this replacement to the Texas franchise tax.
Your initial choice of a business form doesn’t have to be permanent, however. You can start out as sole proprietorship or partnership and later convert your business to an LLC or a corporation.
The Benefits of a Limited Liability Company or a Corporation
Forming a corporation or a limited liability enterprise does not have to be complicated, and the benefits received may be worth it. Corporations and limited liability enterprises allow owners to limit their liability for the debts and losses of the company, generally to the amount of the owner’s investment. Most corporations and limited liability companies allow owners to treat income as ordinary income for tax purposes and do not impose any additional corporate or business-related tax burdens. Effective as of January 1, 2006, The Texas Legislature enacted a new comprehensive statute governing all of these choices, called the new Texas Business Organizations Code. In many cases, the new requirements may even work to make your choice smoother than ever before. Our staff and attorneys would be happy to discuss these changes with you.
Guidance in Choosing for Now and the Future
Given the choice between creating an LLC or a corporation, many small-business owners will choose an LLC. If your business will have multiple owners, the LLC may be more accommodating than a corporation in dividing profits and management duties. Setting up and maintaining an LLC can often be less complicated than a corporation.
There may be times when forming a corporation will be more beneficial. For example, because a corporation issues stock certificates to its owners, a corporation can be the ideal vehicle to bring in outside investors or reward loyal employees.
We can guide you in this complex area to best meet
your present and future needs.