Business
creation is a process that when applied properly will yield a prosperous venture.
With most processes, business creation is a hybrid of art and science.
Too much of one or the other and the business’ chances of success are
diminished. However,
when the right combination is found, success is soon to follow.
Once
an individual or group decides to enter into a business venture and has their
product or service identified, the first step is to determine the most advantageous
business structure for their entity.
If the business owner is an individual then a sole proprietorship operating
under a “Doing Business As” (DBA) may be the proper entity.
However, that type of business may create a high risk of liability.
A higher degree of liability may require the owner to incorporate.
The corporate structure allows the owner to limit their liabilities
as well as their exposure to those liabilities.
Additionally, there may be tax benefits that are derived from the corporate
structure that do not necessarily exist for the sole proprietorship.
This is merely the beginning of the analysis.
Businesses
with more then one owner are in the majority.
As with the sole proprietorship, the multiple owner businesses have
a number of options when selecting an operating structure.
Again, the two most important things to consider tend to be liability
exposure and taxes.
Should the business not affirmatively select an operating entity, the
state will see the entity as a quasi general partnership.
Texas code anticipates this possibility and has a set of rules and
standards that fit such a situation.
However, should the owners draft a partnership agreement, buy-sell
agreement, and/or rules and regulations then these documents and take priority
over whatever the state made use as a default; within limitation.
The
owners may determine that more limited exposure to liability is needed and may
opt to select a limited partnership or even limited liability partnership.
Liability in these structures is determined by the agreements that are
drafted to cover such issues.
Additionally, roles and responsibilities are also determined by such
agreements. However,
there are times when the owners must consider even greater limits to their individual
exposure to liability.
The owners may determine that the corporate structure will fulfill their
requirements. But
the corporate structure also has drawbacks.
The analysis to determine the proper business entity is not easy and
should not be taken lightly.
Be informed!
