Business Formation

You have an idea, the necessary skills, the right connections, and the plan to make it all happen. You are starting a business, and you are probably both very excited and very stressed. For all the hope and anticipation starting a new business can inspire, it can also cause equal amounts of anxiety and confusion. That’s where business formation lawyers can help.

Almost immediately, you are faced with big, jargon-filled questions that could define the future of your business: Are you forming a partnership? an LLC or a PLLC, C corp or S corp? At the very least, dealing with these difficult legal issues can take the excitement out of the process. At worst, it can lead you down a path to failure if you make even a small mistake. Fortunately, you can focus on developing your business and turn these complex legal issues to one of our business formation lawyers at Jackson, Landrith & Kulesz, PC.

Types of Business Entities

Forming your business is not usually as simple as calling yourself a business and being done with it. You may have to file formal legal paperwork to legally become a business entity in Texas.

But what kind of business entity do you need? There are several choices in Texas, and we outline the most common ones below.

C Corporations

A C corporation is the typical corporation you think of when you picture big businesses—shareholders, meeting minutes, and the like.

This is the most complicated type of business entity to form, but the potential benefits can be big: Your personal assets are protected from company liabilities absent special circumstances, you can sell shares in the business to raise a lot of money very quickly, and you can easily transfer ownership interests.

Aside from the complicated legal paperwork required, potential drawbacks of forming a C corporation include facing higher taxes than you would on your own, maintaining meeting minutes and detailed financial reports, and upholding stringent shareholder accountability rules.

S Corporations

A S corporation is organized like a “C” Corporation, but with a special election with the IRS (an “S election”).  It is taxed like a partnership but has the liability protection of a C Corporation.

S corps can provide various tax benefits, such as allowing you to avoid Medicare and Social Security taxes on funds you distribute to yourself.

As a shareholder in your S corp, you theoretically face limited liability, meaning you should not be liable for the debts of the S corp. But this limited liability can have gaps in it, leaving you open to liability for negligence and guaranteeing debts of your corporation.

This business entity is a popular choice for individuals who have a low risk of facing liability, as well as little overhead.

Limited Liability Companies

A limited liability company (LLC) has similarities to corporations and partnerships.

The “limited liability” part of the name means owners’ liability related to the LLC is limited to the investment they have made in the business.

Owners of an LLC—called members—are taxed directly through a “pass-through” tax arrangement, but if the LLC makes more than a certain amount of money, it may face taxes from the state of Texas, too.

Professional LLCs and Professional Corporations

A professional LLC (PLLC) or professional corporation (PC) can be extremely similar to an LLC or corporation. The difference is simply in who, exactly, can form such a business entity. These business entities are limited to people with professional licenses—attorneys, doctors, accountants, architects, and similar professionals.