Choosing An Entity
The law provides a number of different ways to organize and structure a business venture, each with its own pros and cons. The attorneys at Spencer Law Firm can explain to you the different business organization options available to you and advise you on how these various structures can impact your given circumstances. There is not a one-size-fits-all approach to structuring a business enterprise. Individual goals and circumstances must be taken into account when deciding which structure works best for you, both in the near term and in the long term.
In selecting a business entity in Texas, your choices are for the most part the following five business entity forms:
- General Partnership
- Limited Partnership
- Limited Liability Partnership (or LLP)
- Limited Liability Company (or LLC)
Each entity will be discussed in order to form an entity that is best for your particular business objectives. Invariably, clients focus on the following two issues:
- Whether the entity will be taxed and
- The extent to which the entity will shield its owners from liability.
Owners must take into account both federal and state taxes in their determination of entity selection. Corporations pay federal taxes ranging from 15% to 35% of taxable net income, and then the shareholders of the corporation also pay federal income taxes on the distributions they receive from the entity, resulting “double taxation.” An entity such as a partnership or an LLC taxed as a partnership, may be a nontaxable “flow-through” entity, in which case the entity pays no federal income taxes and only the owners pay federal income taxes on the distributions they receive from the entity. Texas does not have a personal income tax on business owners, but does have a “Margin Tax.” The Margin Tax is imposed on almost all Texas businesses except sole proprietorships and some, but very few, general partnerships.
The second key consideration, “limited liability,” means in theory that no member of the entity is personally liable for the debts or obligations of the entity. Some entities provide fairly complete limitation of liability, others provide some limitation of liability, and still others provide no protection whatsoever.
The Spencer Law Firm will assist you in your choice of entity structure by discussing the implications of the tax, liability issues, and each entity’s governance protocols in order to find the right structure for your business. Please contact or call Spencer Law Firm at 713-568-9008 today to discuss how we can help you succeed.