Set Up A Texas Business? Choose The Right Entity

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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.

Texas Corporation

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.

Using Multiple Business Entities: Should You Do It?

By | Business Contracts, Business Lawyer | No Comments

Using Multiple Business Entities: Should You Do ItWhether using multiple business entities makes sense is a dilemma that commonly faces entrepreneurs. This is particularly true for online business owners who have multiple sites targeting different niches with products and/or services.

Does Using Multiple Business Entities Make Sense For A Startup?

Rarely. Although the equity owners may consist of a combination of individuals, corporations, limited liability companies, etc., the complexity of starting a venture from scratch as more than one type of entity typically can’t be justified from a time or cost standpoint.

A notable exception to this rule is where there is some extremely valuable intellectual property (e.g. a patent for cutting edge technology) that the entrepreneurs want to protect by placing ownership in one entity and licensing it to a second entity with the expectation the IP will also be licensed to third parties in the future.

Related Article: How To Set Up A Texas Business In Just A Few Steps

Another exception is where the business is already international in nature and it makes sense from a tax avoidance (not tax evasion) or import/export standpoint to place some business operations in a different country.

A third scenario where it might make sense for a startup to have multiple entities is where one entity owns commercial real estate and leases space to the second entity for the startup’s operations. This can be an advantage where the equity owners overlap but are not all the same. For example, there may be an investor willing to put money in the acquisition of commercial real estate while another may have a preference for investing only in tech startups but not realty.

When A Single Entity Makes The Most Sense

When your business is first starting out, the general rule is that a single entity (e.g. a Texas limited liability company or a Subchapter S corporation) is just fine because you get the liability shield of the entity plus your business venture isn’t overcomplicated with legal and tax compliance issues.

When To Set Up A Second Business Entity

When you have separate streams of income flowing into the business that each generates more than $100,000 annually in revenues, it’s time to talk with an experienced business lawyer about whether to separate your nest eggs into different protection baskets by using multiple business entities.

There are three common methods of expanding from one entity to multiple entities when your income and protection needs justify it.

Related Article: LLC Operating Agreement – Why It’s Important To Have One

First, there’s the creation of a sibling entity. Each entity is separate from the other, neither a parent nor a subsidiary.

Second, one can create a subsidiary entity with the first entity serving as the parent.

The third option requires setting up multiple additional entities at once. Typically, it will mean the creation of
a parent entity for the existing business. The parent will form a second subsidiary in which to spin off some of the operations from the first (sibling) entity. As the business continues to grow, the parent can form new subsidiaries that are siblings to the existing ventures.

Where To Get Legal Help For Your Business Entities

You’ll want to retain an experienced business contracts lawyer who understands technology to help you set up the entities you’ll need and put the right legal documents in places to protect you.

Related Article: Who Can Sign Legal Documents For A Texas LLC?

If you’re interested in setting up a Texas limited liability company or a Texas for-profit corporation, book a phone consultation with Dallas Business Lawyer Mike Young.

How To Set Up A Texas Business In Just A Few Steps

By | Business Contracts, Business Lawyer | No Comments

set up texas businessIs it time for you to set up a Texas business?

The Lone Star State has created one of the most pro-business climates in the world. For example, there’s no state personal income tax. To the extent there are other costs, they’re typically lower than most other states.

In fact, Texas is one of the few states where the Governor spends a lot of time poaching businesses from other states, convincing them to relocate because of the many economic opportunities available here.

How does Texas’ economic climate compare to other states?

And, of course, there are significant advantages for your company when half of the national economic growth is in Texas and the remaining half is split between the other 49 states.

For example, over 130,000 Californians have fled to Texas in the past two years seeking a place they can live and prosper, that rewards work rather than punishes it.

Did you know that Texas now exports more technology than California does?

Now, whether you live in the Lone Star State or elsewhere, maybe it’s time for you to take advantage of Texas business opportunities like so many other entrepreneurs.

So how do you set up a Texas business?

Typically you’ll want to speak with a qualified lawyer who understands Texas business law (e.g. business contracts) as well as Internet law.

By the way, this can take place via a telephone appointment rather than face-to-face. During your consultation, you’ll be able to determine the type of business structure and tax structure that makes the most sense for your unique needs.

Filing the Certificate of Formation with the Texas Secretary of State

Whether you’ve chosen a Texas limited liability company (LLC) or a Texas corporation, your Texas business lawyer can file the Certificate of Formation for your entity. If everything is okay, the Texas Secretary of State will issue a Certificate of Filing for your approved new entity in just a couple of days.

What about U.S. federal and Texas state business taxes?

For the federal government, you’ll want to apply for a Taxpayer Identification Number (TIN), which is usually an Employer Identification Number (EIN). This can be done online at the IRS’s website. You may also elect in some instances to have your entity taxed by the federal government as a Subchapter S corporation.

You can also apply online for a Texas sales tax permit at the State Comptroller’s website. After formation of your Texas corporation or limited liability company, the Comptroller’s office will also mail you information about state franchise taxes. Many small business owners pay little or no franchise taxes.

Should you set up a Wyoming, Nevada, Delaware, or other business entity instead?

It depends.

Did you know that many times this is mistakenly done by entrepreneurs who have been sold on false tax or privacy advantages of forming an business entity in one of these other states?

As a practical matter, unless you’re actually running your business in that state, there’s a big risk that the so-called advantage is in reality a legal danger when you fail to observe the required formalities.

Now, naturally, this can include getting hit with back taxes and penalties from the state where the entity should have been formed or at least registered to do business, and the potential that a court will disregard the entity’s shield and hold you personally liable in a lawsuit.

Whether you’re tired of being penalized for doing business from one of the lesser 49 states, or are in another country but looking to own a business in the United States, there’s never been a better time for forming a Texas business entity.

So, if you’re ready to set up a Texas company, it’s time to schedule a telephone consultation with Texas Internet Business Lawyer Mike Young.