For many Texas residents, having their own business is a big part of the American dream. If you are ready to take the plunge and be your own boss, set aside some time and research the best business structure for your business. We often assist clients in identifying the most appropriate entity for their needs.
According to the U.S. Small Business Administration, the business structure you choose can affect virtually every aspect of your organization, from personal liability to how much you pay in taxes. Although you can convert it to a different type of entity later, the unintended consequences may be significant. Here are some of the most common structures used today.
This is a popular option due to the ease with which you can get up and going. State registration is unnecessary, and there are no requirements for bylaws or meeting minutes. Most business losses are deductible on your tax return. However, this also means that personal assets and liabilities are not separate from the business’s assets and liabilities, making you liable for accrued business debts.
Limited liability partnership
For organizations with multiple owners, this is a good option for those who want a test period proving their plan before agreeing to a more formal business arrangement. A limited liability partnership protects each owner from business debts. Another benefit is that you are not held responsible for other partners’ actions.
Limited liability company
This entity allows you to enjoy many of the benefits offered by the partnership and corporation structures. In most situations, your personal assets are not at risk if the company must face lawsuits or bankruptcy. You do not pay corporate taxes and profits and losses pass through to your own income taxes.
Requirements and benefits vary with the different corporate structures such as an S corporation, B corporation and close corporation. Choosing the right one for your needs can save you time and money down the road.