PHAM & CLOVES, PLLC

Business Entity Roulette

Thinking of starting a business? Well, if you have already determined the exact business you want to start, you next need to consider the type of business entity that is best for you. First you should consider just what type and how much risk is associated with your business. For example, will you have a storefront? Will you interact daily with customers/clients? Will you resell equipment or products? Or, will your business be a “behind-the-scenes” business that will not be exposed to public risk?

Depending on your level of exposure to risk, you will need to pick the correct business entity that will shield you best from personal liability. Some business entities that can shield individuals from risk are corporations (Corp. or Inc.), limited liability companies (LLC), professional limited liability companies (PLLC), and limited partnerships (LP or Ltd.).

If you choose to form a corporation, you will need to have a set of by-laws drafted that will set out how the company will operate on a daily basis. Other important by-law provisions include the manner in which how shares are purchased and sold and the how profits are distributed. If a corporation does not have a set of by-laws, how the business’s activities are governed is controlled by Texas statutes as a default position. Therefore, unless you are familiar with the Texas statutes governing corporations, it is imperative that you have drafted a set of by-laws that truly and correctly reflect exactly how you want the corporation to operate.

Similarly, if you form an LLC, which likened to a hybrid of a partnership and a corporation, you will need an operating agreement. An operating agreement functions similarly to a set of corporate by-laws – it sets out the manner and method by which the company functions daily. Just like with a corporation, if there is no operating agreement in place, the governance structure will default to Texas statutory law.

The take away? If you are considering opening a business, before you decide on the business entity to fit your needs, consult a Veritas Legal Group, PC Business Entity Formation Attorney to determine the risks and benefits of each entity type. You may call 713-492-0337 to set an appointment for a consultation, or simply fill out the online contact form and an attorney will contact you within 24 hours to discuss your legal need.