A business is considered a sole proprietorship when only one person engages in business and owns all the assets of the business. The sole proprietor (owner) is also personally liable for any claims against the business.
A general partnership exists when two or more people engage in business subject to a partnership agreement. The partnership agreement does not have to be in writing or filed with the State of Texas. In general partnerships, the partners are all personally liable for any claims against the business.
Limited Partnership (LP) and Limited Liability Partnership (LLP)
A Limited Partnership is a business that generally has one general partner and two or more limited partners. In limited partnerships (LPs), at least one of the owners is considered a “general” partner who makes business decisions and is personally liable for business debts. But LPs also have at least one “limited” partner who invests money in the business but has minimal control over daily business decisions and operations. The advantage for these limited partners is that they are not personally liable for business debts. In order to form an LP, a Certificate of Formation must be filed with the Texas Secretary of State.
The limited liability partnership (LLP) is a similar business structure but it has no general partners. All of the owners of an LLP have limited personal liability for business debts. For an LLP, registration with the State of Texas is necessary.
A corporation is a business that is considered an individual legal entity. Corporations are owned by shareholders and managed by directors. Shareholders and directors have limited liability for claims made against the company. There are many formal requirements involved in the formation of a corporation, the first being the filing of a Certificate of Formation with the Texas Secretary of State. Articles of Incorporation and bylaws must also be executed during the formation of a corporation.
The State of Texas recognizes various types of corporations. An S-corporation is one that is taxed only at the shareholder level when profits are being distributed. A C-corporation is subject to double taxation, meaning that it is taxed at the corporate level and at the shareholder level. A non-profit corporation is one in which the profits of the corporation are not distributed to its shareholders or directors. Non-profit corporations can be exempt from Federal and state taxes with the prerequisite that the appropriate forms are filed with the IRS.
Limited Liability Company (LLC)
An LLC is a business that combines the characteristics of a partnership and a corporation. The owners of an LLC, called members, have many options when it comes to the business structure, management and tax treatment, making this business organization a preferable option for small and large companies alike. The largest benefit of the LLC is limited liability for members.
Contracts are a critical part of every business. They govern sales, rent, services and everything in between. A well written contract can save your business time and money that would have to be spent on a poorly written contract. Chaile can help you draft a new contract or review a proposed contract to make sure you avoid any potential pitfalls and future legal disputes.