Starting a new Texas business can be very exciting work. Depending on the type of business a Texas resident is starting, there are many different rules and regulations for how to file your business.
There are four main types of business formations based around the purpose of the new business and what it will be used for. While there may be overlap, the category will fall under one of the following:
- Sole proprietorship: One person owns and operates the business.
- Partnership: The business belongs to two or more people.
- Limited Liability Company: The business has owners, but also employees.
- Corporation: The company has many levels of management and many employees.
What formation should I use?
The type of formation you file your business under depends a lot on the setup of your business. For example, a business formed as a sole proprietorship or partnership is considered a small business run by just one or two people.
Sole proprietorships and partnerships are the simplest to start but don’t give you as many protections if you get sued. A corporation or limited liability company would have many more protections when it comes to lawsuits and taxes.
When to form an LLC or corporation?
A limited liability company gets a certain amount of protection when consumers try to sue them. LLCs are also more able to bring on contractors and employees if they want to expand.
LLCS are great for small businesses that want to grow and expand while protecting the interest of themselves and their employees. Corporations are like LLCs, but for bigger businesses with more employees and more assets.
Finding out which business formation is right for you can be hard. Take time to research and discuss with your lawyers and business partners to figure out what’s right for you.