The level of personal liability exposure, tax issues, and type and size of business are all factors to be considered in choosing the proper business structure for your needs. LLCs are very popular among small business owners and landowners. The owners of an LLC are called members and these members can be individuals, trusts, partnerships, corporations, or any other legal entity. All LLC members may participate in the management of the business. LLC stands for limited liability company, which means that the liability of all members is limited to their investment in the company and their personal assets are protected if the company is sued. LLCs also enjoy pass-through tax treatment, which means that the business itself is not taxed, but the individual members pay income tax on any profits received from the business. Tax issues are always something to consider in choosing a business structure.
A corporation is a business structure that is separate and distinct from its owners. Corporation owners are called shareholders, but the people who manage the business are called directors. In Texas, shareholders may enter into a shareholders' agreement to eliminate the directors and manage the business themselves. Corporations must also adopt bylaws and hold an annual meeting. Besides management differences, corporations are taxed differently than LLCs. Corporations are double taxed, meaning that the corporation itself is taxed first, and then any distributions received by shareholders are also taxed as personal income.
Under federal law, certain corporations and LLCs can elect to be taxed as S Corps, which means that the entity will enjoy the same pass-through tax benefits as an LLC. An S Corp election for an LLC benefits the tax burden for the self-employed, but the LLC must pay its owners a salary.
A sole proprietorship is taxed the same as an LLC, but does not have any limited liability, meaning that the owner is personally responsible for all debts and liabilities of the company. A sole proprietorship has no formal filing requirements.
While not required for formation, it is often advisable to put an "operating agreement" in place for your LLC, as a means of clearly defining the roles of your members and discouraging future disputes that distract from business. Noncompete and nondisclosure agreements for your members or withdrawing members are also something to consider and sometimes, essential. Seeking legal guidance in these types of documents will help your business start on the right track so that you can focus on operations and productivity. In the course of business transactions and dealings, disputes will inevitably arise. We are equipped to handle various corporate and business-related disputes, including: