If an individual owns and operates a business, the business can be operated as a sole proprietorship. If two or more people own the business, it can be formed under a general partnership. These are the most common business forms, and the state doesn’t require any formal organization.
If the business uses a name that is not the same as the last name of its owner or owners – Best Pest Control rather than Robinson’s Pest Control, for example – the sole proprietorship or general partnership must file an assumed name certificate. This document, also know as a DBA, for “doing business as,” should be filed in the county clerk’s office in the county where the business is located. Some businesses do not have one specific business premise location, and for these businesses the DBA should be filed in every county where the business does its work under the assumed name.
No DBA or other filing is required under Texas law for these simple business forms when they are doing business under the owner name or names.
The owners of a business can create a corporation by filing a certificate of formation with the Secretary of State. Corporations have standing as a person under Texas law.
Generally, a corporation must have articles of incorporation and should have bylaws that lay out how the corporation is to be run. The owners of a corporation are called shareholders, and the people who conduct the corporate business are called directors. It is possible for shareholders to take over running the corporation, eliminating the directors.
To avoid individual liability for the owners and officers of a corporation, a corporation as an entity files tax returns and assumes legal liability.
“Limited” business forms
Several Texas business forms use the adjective “limited” in their names: a limited partnership, limited liability partnership or limited liability company. Establishing any of these forms for a business will require filing the appropriate paperwork with the Texas Secretary of State.
In a nutshell, a limited partnership has one or more general partners and one or more limited partners. The limited partnership operates under a written or oral partnership agreement that specifies the roles of the partners.
A limited liability partnership provides extra protection to the owners of a general or limited partnership by setting a limit on their legal liability.
A limited liability company, or LLC, has powers of a partnership and a corporation. It could be similar to either a general or limited partnership, depending on how the business owners want to structure it. In any case, the LLC functions as a legal person, like a corporation. The documents required to create this kind of business entity are more complex than those required for the other kinds of “limited” businesses.
Some Texas business forms must meet requirements under the law, such as holding an annual meeting, recording minutes and having directors sign legal documents in the name of the business.
To determine the best business form for a small business in Texas, it is advisable to consult with an attorney who is well versed in the Texas laws governing business formation. The attorney will present the advantages and disadvantages of each business form pertaining to the needs of the specific small business, especially concerning taxes, operation and liability issues.
Abstract: Texas small business owners have a variety of choices when selecting a business form, some simple and some more complex. To understand fully the implications of selecting a form, it is helpful to obtain legal advice.