Deciding on the right business structure is a critical step when starting or restructuring a business. For many Texas entrepreneurs, a Limited Liability Company (LLC) is an attractive option due to its flexibility, liability protection, and ease of management. Here’s an overview of business entity options and why an LLC might be the right choice for you.
What Are My Business Entity Options?
Sole Proprietorship
A sole proprietorship is the simplest structure, where you operate your business under your name or a DBA (doing business as). While easy to set up, it comes with one major downside: no liability protection. Your personal assets are at risk if the business is sued or incurs debt.
Corporation
A corporation is a more formal structure that provides personal liability protection for its owners, known as shareholders. Corporations are ideal for raising capital and offer well-established governance rules. However, the dual-tier structure—shareholders, a board of directors, and officers—can make management more complex.
Partnerships
A general partnership involves two or more individuals operating a business together. Like a sole proprietorship, it offers no liability protection, and partners can be held accountable for each other’s actions.
To address liability concerns, some opt for a limited partnership, which includes at least one general partner (with unlimited liability) and limited partners (who enjoy liability protection but have no management control).
Why Is the LLC So Popular?
An LLC combines the benefits of liability protection with the flexibility of less formal management. Here’s why it’s often the best choice for Texas business owners:
Limited Liability
Like a corporation, an LLC shields your personal assets from liabilities tied to the business. This means that if the business faces a lawsuit or debts, your personal assets—like your home and savings—are protected.
Flexible Management Options
LLCs offer two main management structures:
- Member-Managed LLCs: Members (owners) make day-to-day decisions.
- Manager-Managed LLCs: Managers handle operations, allowing owners to focus on other aspects of the business.
Customizable Agreements
LLCs are governed by a company agreement, which outlines roles, responsibilities, and processes. You can tailor this agreement to fit your specific needs, covering everything from profit distribution to ownership changes.
Ease of Operation
Compared to corporations, LLCs require less administrative upkeep while still offering robust liability protection.
Who Should Consider an LLC?
An LLC is a great choice for:
- Sole proprietors looking to protect personal assets.
- Partnerships that want to avoid shared liability risks.
- Small businesses seeking a flexible structure for management and decision-making.
If you’re currently operating as a sole proprietorship or general partnership, transitioning to an LLC can provide the liability protection and operational flexibility your business needs.
How to Form an LLC in Texas
Forming an LLC involves filing a certificate of formation with the Texas Secretary of State. Here are a few key steps:
- Choose a name for your LLC that complies with Texas naming rules.
- File your certificate of formation and pay the required fees.
- Draft a company agreement to outline the rights and responsibilities of members.
- Obtain an EIN (Employer Identification Number) from the IRS for tax purposes.
Start Protecting Your Business Today
Choosing the right business structure is a critical decision, and an LLC might be the perfect fit for your Texas business. At Wadler, Perches, Kerlick, our experienced attorneys can guide you through the process of forming an LLC, tailoring the structure to meet your unique needs.
📞 Call or text 800-929-1725 to schedule an appointment. Meetings can be in person, by phone, or online.
With offices in Wharton County, Fort Bend County, and Matagorda County, we proudly serve clients from all over Texas. Let us help you set up your LLC and secure your business’s future.
