Gary E. Patterson, P.C. has assisted many clients with their incorporation matters. Whether starting your own business, expanding your commercial presence, or making personal financial plans, it is important to ensure that you limit your personal liability, maximize your tax savings, and create a professional image for your clients, customers, and business associates. The attorneys at The Law Office of Gary E. Patterson, P.C. are available to consult with you about the type of business entity that will best suit your needs.
It’s important to familiarize yourself with a brief overview of each type of entity and their basic benefits and potential problems.
Corporations: Corporations are possibly the most recognized business entity. They consist of a board of directors as the governing body and shareholders as owners. Corporations also have officers who manage the day-to-day operations. If formed and operated properly, corporations provide liability protection to their directors, shareholders, and officers. Corporations also provide a vehicle for providing needed benefits to their owners and employees. By making the proper election pursuant to the Internal Revenue Code (for example, electing ‘C’ corporation or ‘S’ corporation status) you can also maximize your tax savings. Corporations provide many benefits, but they can be cumbersome to operate properly with the meeting minutes requirements and other formalities necessary for this type of entity.
LLCs: Limited liability companies are a more modern business entity recognized by Texas statute. LLCs have managers who make up the governing body of the entity, members as owners, and can also have officers, such as president, secretary, and treasurer. LLCs may also have managing members who act both as the governing body and owners of the company. LLCs provide limited personal liability to their members, managers, and officers, and can act as ‘pass through entities’ for tax purposes (similar to the ‘S’ corporation). This entity is ideal for the company that is owned and governed by a few individuals who are looking to simplify the record-keeping requirements and minimize formalities. However, in some situations, LLCs provide fewer tax benefits to members than corporations.
Partnerships: General partnerships provide no liability protection. All partners in a general partnership share in the assets, income, management, and liabilities of the general partnership. Limited partnerships provide limited liability to limited partners who are generally considered passive investors in the partnership venture. LPs must have a general partner that will be responsible for all partnership liabilities. Limited liability partnerships (LLPs) provide limited liability for certain debts and claims if properly registered with the Texas Secretary of State. Partnerships are governed by partnership agreements that set out the rights and duties of each partner, and the agreements can be highly tailored to meet the business purposes of the partnership.
Sole Proprietorships: Sole proprietorships, also known as d/b/a or assumed names, are not a separate legal entity from their owner. As a result, they provide no limitation of personal liability and little tax benefit. An assumed name is registered with the county or counties where the business will operate.
For further information regarding filing requirements, the Texas Secretary Secretary of State website provides useful information.