The Attorneys at Matthew Hill Law, PLLC Know Entity Formation and Maintenance.
Selecting the proper business structure is a decision that a person should make in consultation with an attorney and accountant, taking into consideration issues regarding tax, liability, management, continuity, transferability of ownership interests, and formality of operation.
Matthew Hill Law, PLLC has worked with small and large business owners for over a decade, helping them to form and properly operate and maintain the entity that is right for them. So, if you want to start a business or already have a going concern, contact Matthew Hill Law, PLLC to make sure that you set your business up right and/or that you are operating it correctly. Without our expertise, you may soon find yourself and your business in trouble without the protection that a properly created and operated entity can provide.
To be clear, the information provided below is for informational purposes only. It is not an adequate substitute for the advice of an experienced business or transactional attorney. Anyone considering starting their own business should seek consultation with an experienced attorney. Nothing found below constitutes legal advice. Moreover, the information below does not go into detail on the tax advantages of one entity type over another, as these can vary based upon the purpose of the business entity. That's why Matthew Hill Law, PLLC works closely with the CPA of your choice to ensure that you are properly advised on all fronts.
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Selecting a Business Structure
Which One is Right for You?
Although it is almost always a bad idea, the most common and the simplest form of business is the sole proprietorship. In a sole proprietorship, a single individual engages in a business activity without the necessity of formal organization, and there is no state-filing requirement. If the business is conducted under an assumed name (a name other than the surname of the individual), then an assumed name certificate (commonly referred to as a DBA) should be filed with the office of the county clerk in the county where a business premise is maintained. If no business premise is maintained, then an assumed name certificate should be filed in all counties where business will be conducted under the assumed name.
Once again, a sole proprietorship is almost always a bad idea because it offers to owner absolutely no liability protection whatsoever from the debts and obligations of the business. This means that if the business defaults on a loan, get sued, or if someone is injured on your business’s property, you, as the owner, will be held personally responsible. In the event that you can’t satisfy debt or obligation, a creditor may be able to go after your personal bank account and possessions to repay the debt.
A general partnership is basically any association between two or more people carried on for profit. Each person in this association is called a “general partner.” It is important to note that in Texas, partnerships can be created without the intention of the parties. So, even if you don’t intend to form a partnership with someone, the law may determine that you are partners because of the way you acted in a business relationship. This can become a very real problem. For example, Texas partners split profits and losses by default. This means if the courts determine that you and someone else were in a general partners and the other person loses a bunch of money in his end of the business, it is possible that you could be sued alleging that you are responsible for half of those losses. This is why a general partnership is almost always the worst way to operate a business.
While general partnerships are extremely easy to form since there is no filing requirement or required formal agreement, as outlined above the use of a general partnership for carrying on a business is almost never in the best interest of the partners. Additionally, as with a sole proprietorship, the general partnership offers the partners no protection from the debts and obligations of the partnership. The only real difference between the two is that when going after a general partnership a creditor has more people to go after.
The most commonly formed entity in Texas is the limited liability company (LLC), which is created by filing a certificate of formation with the Texas Secretary of State. When the certificate of formation is properly filed and contains all of the statutorily required information the Texas Secretary of State accepts the filing and returns a Certificate of Filing showing that the LLC has been created.
The LLC is not a partnership or a corporation but rather is a distinct type of entity that has the powers of both a corporation and a partnership with limited liability, or to a limited partnership where all the owners are free to participate in management and all have limited liability, or to an “S” corporation without the ownership and tax restrictions imposed by the Internal Revenue Code. Unlike the partnership, where the key element is the individual, the essence of the limited liability company is the entity, requiring for its creation more formal requirements.
The owners of an LLC are called “members.” A member can be an individual, partnership, corporation, trust, and any other legal or commercial entity. Generally, the liability of the members is limited to their investment and they may enjoy the pass-through tax treatment afforded to partners in a partnership. As a result of federal tax classification rules, an LLC can achieve both structural flexibility and favorable tax treatment. Moreover, your membership units in an LLC are an exempt asset, meaning that a judgment creditor cannot seize them from you. It is this tax flexibility when taken together with its asset protection characteristics that make the LLC the most popular entity in Texas.
A limited liability company can be managed by managers or by its members. The management structure must be stated in the certificate of formation. Management structure is a determination that is made by the LLC and its members.
A Texas corporation is created by filing a certificate of formation with the Texas Secretary of State and is a legal person with the characteristics of limited liability, centralization of management, perpetual duration, and ease of transferability of ownership interests. The owners of a corporation are called “shareholders.” The persons who manage the business and affairs of a corporation are called “directors.” However, state corporate law does provide for shareholders to enter into shareholders’ agreements to eliminate the directors and provide for shareholder management.
A Texas limited partnership is a partnership formed by two or more persons and having one or more general partners and one or more limited partners. The limited partnership operates in accordance with a partnership agreement, written or oral, of the partners as to the affairs of the limited partnership and the conduct of its business. While the partnership agreement is not filed for public record, the limited partnership must file a certificate of formation with the Texas Secretary of State.
In order to limit the liability of its general partners, a general or limited partnership may opt to register as a limited liability partnership. This is done by filing a form for registration with the Texas Secretary of State as a limited liability partnership.
Professional Entities
Specialty Cases.
Architects
Attorneys
Certified Public Accountants
Dentists
Physicians
Public Accountant
Veterinarians
Matthew Hill Law, PLLC also works with various types of professionals that have additional options when considering the right type of business structure for them and their particular practice area. Those professional entities are generally reserved for certain subsets of professions and are spelled out in the Texas Business Organizations Code. Those professional entities primarily involve certain professions in Texas that require a license.
Examples of Texas Professional Entities.
Professional Association (PA)
Professional associations in Texas are reserved for healthcare professionals. They operate in a similar way to corporations with a board of directors or executive committee. However, Pas do not have the same level of formality as a standard corporation.
Professional Corporation (PC)
As the name implies, professional corporations operate just like for-profit corporations in Texas. There is a variety of professions that may elect to form a professional corporation.
Professional Limited Liability Corporation (PLLC)
The same subset of professions who may choose a professional corporation, may also choose a professional limited liability company. The difference between the entities are analogous to their non-professional counterparts.
Maintaining your Business Entity.
Once you have your business entity up and running, you must still operate and maintain it properly. Matthew Hill Law, PLLC has the experience and knowledge necessary to help you do just that. We assist you with any required annual meetings, minutes, or filings. We can also make sure that you handle your business affairs in compliance with your entity’s governing documents.
Finally, we can assist you as you communicate and sign various contracts on behold of your entity. Matthew Hill Law, PLLC knows that your entity will only provide you with the liability protection you desired if you operate and maintain it properly. We are here to help you in that regard.
Are You Ready to Get Started Setting Up your Professional Entity?
The most important thing to remember when selecting a business entity in Texas is being fully aware of the advantages and disadvantages of each form. While the provided information hopefully serves as a basic discussion of these entities, it by no means covers all of the potential benefits and pitfalls of choosing one entity over another. To properly understand and choose the entity that is right for you, contact Matthew Hill Law, PLLC for the expertise you need.
Contact Us Today!
Consulting with Matthew Hill Law, PLLC about the proper formation, maintenance and operation of your business will likely spare you the heartache of having to employ an us to fix the problems which may be created if you choose to go it alone.
Contact us today and let us get to Work For You.