The business structure you decide for your startup will impact most aspects of your business from taxes to liability, management to transferring ownership interests and operations. Doing a little research on the different structures will help orient you during consultations with legal experts and financial advisors so that you can ask well informed questions prior to making your decision.
The following are a few of the most common structures:
Sole Proprietorship is a business owned and run by a single individual. There is no distinction between the business and the owner of the business. The sole proprietor is entitled to all profits and responsible for all debts, losses and liabilities.
General Partnership is when a single business has two or more people that share ownership. All partners equally share profits, liability and management duties unless unequal distribution is documented in the partnership agreement.
Limited Partnership, also called a partnership with limited liability, limits the partners’ management decisions as well as liability. Limits depend on each partner's investment percentage from the partnership agreement.
Corporation, also referred to as C corporation, is an independent legal entity owned by shareholders. The corporation is held liable for actions and debts undertaken by the business.
Limited Liability Company, LLC, is a structure that draws aspects from both corporations and partnerships. LLCs are not taxed as a distinct business entity, and the ‘owners’ of the LLC are called ‘members’ who share all the profits and losses.
Taking additional time to read through the top questions about incorporating you small business from the Small Business Administration gives insight as to what other small business entrepreneurs have struggled with too. Additional information about ownership, management and business structures in Texas can be found with the Texas Secretary of State.
It is important to note that this is not a comprehensive list of all the business structures, and each structure has its unique benefits and disadvantages.