Friday, July 29, 2011

Choice of Business Entity



by Carrie E. Campbell, J.D.

The basic business structures recognized in Texas include sole proprietorships, general partnerships, limited partnerships, professional partnerships or associations, limited liability companies, closely held corporations, and C Corporations. In electing the business entity best for your business enterprise, there are six factors you should consider.

(1) The first consideration is "start up" costs. Filing fees with the Secretary of State vary from zero to $750 depending on the structure. Attorneys fees and consultations with your accountant should also be included in the calculations. Flat fees are available and range from a few hundred to $2000 for attorneys fees, again depending on the structure selected. (2) The second consideration is the management structure and the degree of formality required to maintain the business. Flexibility will be sacrificed for liability protection. (3) Which brings us to the third consideration - liability concerns. The greater the exposure to liability, the more insulation is needed to protect the personal assets of the owners/investors. (4) The fourth consideration is taxes. The business structure will determine whether self-employment, franchise or corporate taxes will apply to income. It can also provide the option of wages versus dividend income for minimizing taxes owed. (5) The fifth consideration is the potential for raising capital, whether debt and/or equity financing are available to grow the business. (6) The sixth and final consideration is cost and complication of terminating the business if things don’t work out as hoped. An attorney experienced in business formation can assist you in weighing these various factors and make a recommendation for the entity best suited to address your particular situation.

Above all, a written understanding either in the form of a partnership agreement, regulations or by-laws, will greatly reduce the likelihood of disputes. Many friendships and/or business relationships could be saved by simply clarifying expectations before the money is invested

No comments:

Post a Comment