BUSINESS FORMATION LAWYER IN HOUSTON, TX

Owners face many risks in creating and operating businesses, but by formalizing your business with the Texas Secretary of State, you can gain limited liability. Company formation in Texas provides a structured legal framework that protects business owners from personal liability.

 

Setting up a separate legal entity between you and your business means that you can’t be held personally liable simply because you own the business.

 

Company Formation in Texas: How to Protect Yourself from Business Liability

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Starting a business in Texas? Formalizing your business entity with the Texas Secretary of State gives you limited liability protection—shielding your personal assets from business debts and lawsuits.

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TL;DR

• Registering your business in Texas limits personal liability.

• Corporations, LLCs, and partnerships offer varying legal protections.

• LLCs combine corporate and partnership benefits.

• Filing with the Texas Secretary of State establishes your legal framework.

• Get professional help to choose the best entity and draft governing documents.

 

What Does Company Formation in Texas Mean?

Forming a company in Texas legally separates you from your business. Once you register, your company becomes a distinct legal entity—protecting your home, car, and personal savings from being seized to pay business debts or claims.

 

Which Texas Business Structures Offer Limited Liability?

Texas recognizes three primary entity types that protect owners from personal liability:

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1. Corporations

A corporation is a separate “person” under Texas law, owned by shareholders. Contrary to popular belief, even small businesses can form corporations. This structure provides continuity, easier fundraising, and potential share resale.

Key Benefit:
Limited personal liability and professional management structure.

Drawback:
“C corporations” face double taxation—profits are taxed at both corporate and individual levels. However, S corporations bypass this issue by reporting income directly on personal tax returns.

Corporation TypeLiabilityTax TreatmentIdeal For

C CorporationLimitedDouble TaxedVenture-backed startups

S CorporationLimitedPass-throughSmall to midsize businesses

 

2. Limited Partnerships (LPs) and Limited Liability Partnerships (LLPs)

In a limited partnership, at least one general partner manages the business and assumes liability, while limited partners invest without being personally responsible for debts.

A limited liability partnership (LLP) extends liability protection to all partners—ideal for professional groups like law firms or accountants.

Key Benefit:
Profits are taxed once, as personal income.

Legal Note:
General partners owe fiduciary duties to all other partners, meaning a breach could result in serious legal exposure.

 

3. Limited Liability Companies (LLCs)

An LLC combines the flexibility of partnerships with the protection of corporations. Members are not personally liable for company debts and can choose how the LLC is managed—either by members or elected managers.

Why Texas Entrepreneurs Prefer LLCs:

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• Pass-through taxation (no double tax)

• Simplified management and governance

• Ability for members to participate directly in operations

 

Just like corporate bylaws, LLCs are governed by a Company Agreement defining how the business operates.

 

How to Register a Company in Texas

All these entities are created by filing formation documents with the Texas Secretary of State. This step provides:

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• Legal recognition and liability protection

• Access to banking, financing, and contracts under your company’s name

• A framework for resolving disputes and protecting your ownership rights

 

Work with a Texas business attorney to select the right entity, draft governing documents, and ensure compliance with state regulations.

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Three types of entities can protect you from being held to account for your business’s debts. The first is the corporation, where the business is a separate “person” owned by its shareholders. Most people think of corporations as giant, billion-dollar enterprises – but small businesses can be corporations too! The ability to resell shares and ensure steady management can assist a new business in finding its footing so long as securities laws restricting fundraising are satisfied.

 

Corporations usually have the disadvantage of double taxation – the corporation’s income gets taxed first, and then any money the corporation pays its stockholders (called “dividends”) or employees (salary or wages) gets taxed again. However, some corporations (called “S” corporations) avoid this problem, as their owners can report all income from the corporation as personal income for tax purposes.

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Two other entities offer similar advantages to small business owners. In a limited partnership, some partners are “general partners” that run that business and absorb any liability; the rest are “limited partners” that can’t be held liable but can profit. Limited liability partnerships are limited partnerships that also limit the general partner’s liability to a certain amount. These partnerships are created by a partnership agreement – the agreement that binds all partners to certain rules. Like “S” corporations (and unlike double-taxed “C” corporations), income from a limited partnership is taxed as personal income to a partner. Unlike corporations, the general partner of a limited partnership normally owes fiduciary duties to all other partners – and if these duties are broken, the general partner may be in serious legal trouble.

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Finally, company formation in Texas offers various business structures, including limited liability companies (LLCs), which combine elements of corporations and limited partnerships. Like partners, members of an LLC only have their LLC income taxed once; also like partners, members of an LLC may owe fiduciary duties to the other members. Registering a company in Texas as an LLC allows every member to take part in the business—an LLC can either be managed by managers (who can be elected or selected) or by its membership. Thus, just as a corporation has bylaws, an LLC is governed by a company agreement that describes how the LLC will work.

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All of these types of businesses start the same way: by filing key documents with the Texas Secretary of State. All of these businesses have the advantage of a formal set of rules that bind you and your business partners, to ensure that everyone lays by the same rules. We can help you determine what type of entity is right for you , draft governing documents to keep your company in business, and let you know what rights and obligations you may have under any company agreement.