When starting a business, you will need to consider if you will have partners, your potential personal liability, tax implications, and the company structure. An LLC offers liability protection with fewer formalities. A corporation requires a board of directors, bylaws, and annual meetings, and may involve shareholder taxation. A general partnership is simpler but offers less liability protection. Proper business formation filed with the State of Texas is required before you start doing business.
Key Considerations When Choosing an Entity for Your Business
When forming a new business, one of the first decisions is to select the right type of business entity. There are several important factors in selecting the entity type you wish to create. Here are some of those considerations:
- Whether there will be one owner or multiple partners
- Liability exposure
- How you want the business structured
- Tax implications
- Future plans, such as bringing in shareholders
Each structure offers different advantages and responsibilities.
Limited Liability Company (LLC)
A Limited Liability Company or LLC can have one main partner or several partners. One of the biggest advantages is liability protection. Compared to a general partnership, an LLC provides better protection if the business is sued.
LLCs also have fewer formal requirements. They typically involve fewer meetings and less regulation than corporations, making them appealing for business owners who prefer flexibility and simplicity.
Corporation
A corporation is governed by a board of directors and operates according to bylaws. Unlike an LLC, corporations must hold annual meetings and follow their bylaws strictly.
Corporations can be structured as C-corporations or S-corporations. Shareholders may receive dividends, which are reported on a K-1 and taxed personally at the end of the year. Because of this potential personal taxation, it is important to carefully consider the tax structure when forming a corporation.
Corporations may be more suitable for businesses that plan to have shareholders or anticipate future growth involving multiple owners.
General Partnership
A general partnership requires one or more partners and is formed through a partnership agreement. However, it does not provide the same liability protection as an LLC.
In a general partnership, partners are more susceptible to personal liability if the business is sued. For that reason, many business owners may find that forming an LLC provides a stronger umbrella for asset protection
The Formation Process
Once a decision is made, proper formation documents must be filed with the Texas Secretary of State. The required paperwork is prepared and registered with the State of Texas. Once the documents are approved and returned, the entity is officially registered.
If forming a corporation, bylaws must also be drafted, and it is best to have those drafted by an attorney
Although you technically can begin operating before approval, it is not advisable. It is better to wait until formation is complete, so business bank accounts and documents are properly set up in the entity’s name.
Whether you’re forming an LLC, drafting partnership agreements, or setting up your corporate structure, the experienced legal team at Martinez Legal, P.C. is here to guide you every step of the way. Don’t leave your business launch to chance, protect your ideas, minimize risk, and build a solid legal foundation from day one. Contact Martinez Legal, P.C. today to get the legal support you need to start strong and succeed.
Our office is located at 1317 E McKinney St #109, Denton, TX 76209. Our phone number is 940-242-2433
FAQs
1. What is the main difference between an LLC and a corporation?
An LLC generally has fewer meetings and less regulation, while a corporation requires a board of directors, bylaws, and annual meetings.
2. Does a general partnership protect me from personal liability?
No. A general partnership does not offer the same liability protection as an LLC.
3. Can I start doing business before my entity is approved?
Technically yes, but it is strongly advised to wait until everything is properly filed and approved.
As a founding partner of Martinez Legal P.C., Marci B. Martinez works with clients regarding their family law needs. She has extensive court experience, handling cases involving divorce, estate planning, adoptions, premarital agreements and private mediation for clients in Denton, the Dallas Metroplex and across Texas.
Ms. Martinez received her Bachelor of Science in human resource management from Arizona State University in 2002, Magna Cum Laude.
She earned her Juris Doctor from the Sandra Day O’Connor College of Law at Arizona State University in 2005. At law school, she was an Editor for the Arizona State Law Journal and the executive officer of the Christian Legal Society.
