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Choosing the Best Structure for Your New Dallas Business: A Dallas Business Lawyer’s Insights

Dallas business lawyer, Richard “Ric” Armstrong, talks about the different types of business structures in Texas and the legal implications of each.

If you’re starting a new business in Dallas, selecting a legal structure may be one of the most important decisions you make. You can, of course, change structures later if necessary, but doing so can become complicated and costly as your business grows. When choosing a business structure, you want to consider a number of factors such as simplicity of structure, legal liability, taxes and room to grow.

Five Basic Business Types

Texas recognizes five basic legal structures for businesses. Here’s a quick rundown:

1. Sole Proprietorship:  Technically not an “entity” at all, it allows an individual to do business in his/her own name or under an assumed or fictitious name.

• Examples of Texas sole proprietorships: A Dallas freelance writer, musician for hire, etc.

• Pros and cons: While this structure is the simplest and easiest to set up, it also carries a higher tax burden and offers absolutely no liability protection if you get sued.

2. General Partnership: Two or more business partners establish a business entity with each owning all or a portion of the assets and liabilities.

• Examples of Texas general partnerships: Two practicing physicians sharing office space; a creative advertising team.

• Pros and cons: Partnerships are fairly simple to set up and dissolve, requiring no filing with the state, and only a written partnership agreement.  But they offer limited tax benefits and no real liability protection, since each member may be sued in his individual capacity for liabilities of the partnership.

3. Corporation: In the eyes of the law, a corporation is legally treated as an  individual, owning its own assets, incurring its own liabilities, and taxed as a separate entity.

• Examples of Texas corporations: A Dallas restaurant (or chain of restaurants); a manufacturing firm

• Pros and cons: Corporations enjoy numerous tax advantages, and owners generally can’t be held personally liable if the company is sued. Unfortunately, corporations can also be costly to set up and complicated to administer, so they aren’t right for everyone. Stock restriction or buy-sell agreements are a must for small corporations. For tax purposes, may be set up as an “S” corporation where the entity is ignored, a a “C” corporation, where the entity is taxed.

4. Limited Liability Company (LLC): This entity blends some of the attributes of both a partnership and a corporation. It is an increasingly popular form of business for companies that are not publicly traded, with a relatively small number of equity holders.

• Examples of Texas LLCs: Almost any service business.
• Pros and cons: LLCs provide similar liability protections as a corporation in the case of a lawsuit (hence: “limited liability”). Lots of flexibility for tax purposes, as they can elect several kinds of tax treatment. However, formalities are easily ignored, and members often forget to obtain an operating agreement or member restriction agreement, to cover contingencies like split-up, deadlock, etc.

5. Limited Partnership (Ltd.): This entity contains a general partner, which is usually a corporation or a limited liability company, and a group of limited partners.

• Examples of Texas limited partnerships: Oil and gas or real estate investment companies.

• Pros and cons: A great vehicle to attract investors by allowing them to take profits or tax deductible losses without exposing them to liability. Limited partners are only exposed to liability to the extent of their assets (generally minimal). However, the partnership agreement is expensive to prepare and to file, and limited partners can lose their protected status by becoming active in the partnership.

If you’re thinking to start a business, a Dallas business law attorney can offer guidance in selecting the right structure and drafting paperwork. For an appointment, call Armstrong The Law Firm, P.C., today at 972-424-L-A-W-S (5297).

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Armstrong The Law Firm, P.C.
Plano Location
1400 Gables Ct #103
Plano, TX 75075

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5601 Bridge Street, Ste. 300
Ft. Worth, Texas 76112

Phone: (972) 424-5297