Key Considerations for Choosing the Right Business Structure for Your New Business
Starting a business is one of the most exciting things you can do. Soon-to-be business owners spend so much time, money and effort formulating a business idea, deciding on a location, figuring out who to hire and how to sell a product or service, but not much thought is given to the business structure.
Everything starts with the structure of a business, though, as that will determine everything from your tax liability to your legal protections to your day-to-day operations. Choose a structure that is best for you and gives you the perfect combination of benefits and legal protections.
Here are the four main types of business structures in Texas.
A sole proprietorship is the most common form. This happens when only one person owns the business. Your business assets and liabilities will not be handled separately from your personal assets and liabilities and, therefore, you can be held personally liable for any debts and obligations of the business. This is a good business structure for people who want to try out an idea for a business before establishing a more formal process.
A general partnership can be created when two or more people come together to form a business.
There are two forms of a general partnership:
- Limited Partnership: One general partner will have unlimited liability while all the others will have limited liability. The limited liability partners generally have limited control over the company. Profits get passed onto each partner’s personal tax returns and the general partner will also pay self-employment taxes.
- Limited Liability Partnership: In this business structure, limited liability will be given to every owner. This will protect each partner against the partnership, meaning they won’t be responsible for the actions of the other partners.
A corporation is a legal entity that’s completely separate from the owners. This is the type of business structure that provides owners the most protection from personal liability, as a corporation is able to be taxed, make a profit and be held legally liable. Corporations must pay income tax on their profits, unlike sole proprietors, partnerships and LLCs.
A corporation provides flexibility for shareholders who enter or leave the company, or buy or sell shares, allowing the company to proceed as normal when that occurs.
Limited Liability Company
Better known as an LLC, a limited liability company combines the benefits of both corporations and partnerships. LLCs protect the owner from personal liability in most cases and allow you to pass profits and losses through to your personal income taxes without having to pay corporate taxes. However, LLC members must pay self-employment taxes.
Hire an Attorney Who Can Help You Select the Best Business Structure
Choosing a business structure can be complicated, but it’s one of the most important steps to take before you start your business. Contact the experienced attorneys at the Elissa I. Henry Law Firm by calling (512) 377-1124.
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