Starting a new business is exciting. Determining which type of legal business entity is best for your business may not be as exciting. However, it’s important to plant your venture in the right legal entity so that it may thrive. The type of business entity you select will impact your business’s tax liability as well as the personal liability of the business’ owners and officers.
Which Business Entity Is Right For You?
There are many types of business entities, each appropriate for businesses of different types and sizes in the Fort Worth and Arlington areas:
- Sole Proprietor: If you are operating a business essentially on your own, and you expect your overhead and potential for personal liability to be extremely low, a sole proprietorship may work for you. A sole proprietor will report all business income on his or her personal income tax return. You will need a federal tax identification number and an assumed name certificate if you are operating your business under any name other than your own.
- Corporations: Corporations are the most complex of the business entity types and require the most legal formalities. The officers of the corporation must hold regular meetings, make financial reports, keep minutes, allow inspection of records by the corporation’s shareholders and comply with a variety of other required actions. Despite the complexity of this type of entity, a corporation may be the right choice for your business if you want to shield your personal assets from liability, raise large amounts of capital by issuing shares, spread the risks associated with running a business among several investors and ensure the ongoing existence of your business even after you pass away.
- Limited Liability Companies: A limited liability company is in many ways a hybrid of the corporation and the limited partnership. Essentially, an LLC allows for the personal asset shielding powers of a corporation with the “pass-through” tax advantages of a partnership. The disadvantage of the LLC is that it may be subject to state taxation depending on how much money it makes over the course of the year.
- Professional Corporations and Professional LLCs: Professional corporations and professional limited liability companies are very similar to corporations and limited liability companies, but they are only available to accountants, lawyers, veterinarians, physicians, dentists and certain other professions.
Jim Ross formed his own business and has helped many other citizens of Tarrant County realize their dreams of starting their own businesses on solid legal footing. Let the Jim Ross Law Group guide you through the process of entity selection so that you can get started doing what you really want to do: growing your business.
Entity Formation For Business Partners
A partnership, as you may expect, requires at least two owners of the business. Partnerships are sometimes referred to as “pass-through” entities for the purposes of federal tax liability, meaning that the partnership itself is not taxed — the individual partners are taxed on their income from the business on their personal tax return. There are three types of partnerships: general, limited and limited liability.
- General Partnership: A general partnership allows for a lot of freedom in how you want to structure your business. The partners can decide amongst themselves how to split up the income and the responsibility for the losses. A general partnership is the least complicated type of partnership to form and dissolve, but the partners are not protected from personal liability if the business is sued for any reason. A related disadvantage is that banks may not be willing to extend as much credit to a general partnership because the partners are not protected from liability created by the other partner’s actions.
- Limited Partnership: Consists of a general partner and one or more limited partners. The general partner again has personal liability if the business is sued, but has management powers. The limited partners do not have personal liability but they do not have authority to manage the business. A limited partner can expose him or herself to personal liability if he or she makes any management decisions. A limited partnership must maintain a registered office and agent for service of process. It may also be required to file periodic reports with the Texas secretary of state’s office.
- Limited Liability Partnership: A limited liability partnership consists of at least two partners who are shielded from personal liability for most negligent or intentional tortious acts by other partners as well as from debts or contractual obligations of the partnership. To form an LLP, an application must be filed with the Texas secretary of state for approval. The LLP may be required to carry liability insurance.
Contact an Arlington Business Formation Lawyer
Please call our office at 817-275-4100 or contact our Arlington, Texas business lawyers online to schedule your free, no-obligation consultation. We look forward to being a part of your business’s success.