As I mentioned in the “Top 10 Things To Do When You Set Up A Texas Business,” the second thing you should do is pick the business entity that’s right for your venture.
Sole Proprietorship or General Partnership
If you’re broke with few assets, it may make sense to set up a sole proprietorship (one person) or a general partnership between two or more individuals (e.g. spouses).
Of course, this doesn’t provide you with a personal liability shield.
So, if there’s a lawsuit against your business, your personal assets might be taken to satisfy any judgment for the plaintiff. This is a key reason why a sole proprietorship or general partnership between individuals rarely makes sense unless you’re essentially judgment-proof because of the lack of assets.
A for-profit Texas corporation is one alternative you may want to consider when you set up a Texas business entity. If you do it right, the entity will provide a corporate shield of your personal assets against most claims. In other words, if there’s a lawsuit or a business fails, you can typically walk away with your personal assets intact.
There’s also the ability to choose to way your entity is treated for tax purposes. For example, you can have it treated as a Subchapter C corporation or a Subchapter S corporation for federal income tax purposes.
Texas Limited Liability Company
A popular choice to consider when you set up a Texas business entity is a limited liability company (LLC). Like a Texas corporation, a Texas LLC offers a shield that protects your personal assets from most claims. And an LLC requires less paperwork to run it correctly.
Related Article: Form A Texas LLC Or Corporation
A Texas LLC also provides you flexibility for tax purposes. For example, you can tell the IRS to treat it like a Subchapter S corporation, a partnership (if more than one equity owner), or even a disregarded entity (like a sole proprietorship) if there’s one owner (a single member LLC).
Which Entity Do You Pick When You Set Up A Texas Business?
Talk with an experienced Texas business lawyer in order to make an informed decision on the type of entity that’s right for you. To speak with Texas Business Attorney Mike Young, set up a phone consultation now.