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BUSINESS LAW FAQs

 

 

IS STARTING A BUSINESS IN TEXAS FOR YOU?

Answer: Starting a business can be exciting, challenging, and rewarding. In order to see whether a business is for you, you should ask yourself the following questions:

Do you take orders from others?
Do you think that your future is in someone else’s hands?
Do you have to attend endless meetings at which nothing ever happens?
Are you making money for someone else?
Do you have to deal with difficult people?
Are you tired of having your ideas ignored?
Do you want the freedom to set your own schedule?
Would you like to be the envy of your family, friends, and neighbors?
Are you being held back by your education, age, race, sex, or background?
Would you like to build an estate for your family?
Would you like to spend more time with your family?

All around you there are self-made business owners who had an idea or offered a service and started a business. Now, those businessmen/women are successful and are hiring employees to work for them. You have been in business your entire life. Your product is your time and skills. Your customer is your employer who purchases your product and skills. You sell your product and skill and use the proceeds to cover your overhead, food, shelter, transportation, and such. At the end of the month, what you have left over is your profit.

WHAT TYPE OF BUSINESS IS RIGHT FOR YOU?

Answer: Many people enter into business just for the money. They work very hard to sell a product or service, and when they slow down, the business slows down as well. Most people will slow down after a year or two in business, as most people cannot keep up the energy level. The key to success is to sell a product or a service that you find worthwhile that also makes you money. In choosing a business, answer the following questions:
What are your interests?
What do you genuinely enjoy doing?
What are your abilities?
What do others see as your strengths?
What has always come easy to you?
Realistically, how much money do you want to make?
What type of status do you want to have?
What is your lifestyle?
List your expectations.
List your family’s expectation of you.
What are your limitations?

WHAT FACTORS SHOULD I CONSIDER WHEN SETTING UP AN ENTITY IN TEXAS?

Answer: This is a key question when deciding to create a business entity. Many different factors must be considered in order to obtain the best result. The following are some of the factors that you need to consider:

The nature of the business
Barrier to market
Projected income
The market
Type of assets
Objectives
The business plan
Level of control
Centralized or decentralized management
Flexibility of objectives
Short term goals
Long term goals
The people involved (employees, management, executives, and/or officers)
The level of tolerable risk

WHO INVESTS IN A BUSINESS?

Answer: Typically, investors come in the form of friends and family, individuals involved in the business, partner companies, venture capitalists, secured or unsecured creditors, and others.

WHAT BUSINESS DO INVESTORS PREFER?

Answer: Typically, investors come in the form of friends and family, individuals involved in the business, partner companies, venture capitalists, secured or unsecured creditors, and others.

CAN A BUSINESS RAISE INVESTMENT CAPITAL WITHOUT GIVING UP CONTROL OF THE BUSINESS?

Answer: In Texas, the most commonly used legal structures available are Sole Proprietorships, General Partnerships, Limited Partnerships, Limited Liability Companies, and Corporations. Other special purpose entities include Registered Limited Liability Partnerships, Closely Held Corporations, Cooperative Associations, Professional Corporations, Professional Limited Liability Companies, Professional Associations, Non-Profit Corporations, Unincorporated Non-Profit Associations, and Trusts.

WHAT ARE THE MOST COMMON FORMS OF BUSINESS ENTITY(IES) IN TEXAS?

Answer: In Texas, the most commonly used legal structures available are Sole Proprietorships, General Partnerships, Limited Partnerships, Limited Liability Companies, and Corporations. Other special purpose entities include Registered Limited Liability Partnerships, Closely Held Corporations, Cooperative Associations, Professional Corporations, Professional Limited Liability Companies, Professional Associations, Non-Profit Corporations, Unincorporated Non-Profit Associations, and Trusts.

WHAT IS A SOLE PROPRIETORSHIPS BUSINESS?

Answer: Sole proprietorships do not have a separation between the owner and the business, and consequently, the owner controls the business. Sole proprietorships are easy to begin, to work with, and to end. There are no particular state or federal filings required, other than protection of intellectual property marks such as brands and business slogans. All of the owner’s non-exempt assets are available to the creditors of the business for 100% of the business’ liabilities, and all of the business’s assets are available to the creditors of the owner. Administrative costs of sole proprietorships are the least among all of the business forms. The lack of a distinction between owner and business can create problems when it comes time to sell the business, shut it down, death of the owner, or a divorce proceeding.

WHAT IS A GENERAL PARTNERSHIP?

Answer: Sole proprietorships do not have a separation between the owner and the business, and consequently, the owner controls the business. Sole proprietorships are easy to begin, to work with, and to end. There are no particular state or federal filings required, other than protection of intellectual property marks such as brands and business slogans. All of the owner’s non-exempt assets are available to the creditors of the business for 100% of the business’ liabilities, and all of the business’s assets are available to the creditors of the owner. Administrative costs of sole proprietorships are the least among all of the business forms. The lack of a distinction between owner and business can create problems when it comes time to sell the business, shut it down, death of the owner, or a divorce proceeding.

  • Receipt or right to receive a share of profits of a business.
  • Expression of an intent to be partners in a business.
  • Participation or right to participate in control of a business.
  • Sharing or agreeing to share losses of a business or liability for claims by third parties against a business.
  • Contributing or agreeing to contribute money or property to a business. Note that one of the following circumstances alone indicates that a person is a partner in the business, but several in conjunction with each other may indicate the creation and existence of a partnership.

WHAT IS A LIMITED PARTNERSHIP?

Answer: A limited partnership must include at least one general partner and one limited partner. General partners manage the limited partnership while bearing 100% of the risk of all partnership liabilities, whereas limited partners do not participate in management or control, and their liability is limited to the amount of their investment in the limited partnership.

Limited partnerships may be the most preferred business form currently available in Texas. Their incredible flexibility can be designed and combined with other Texas business entities in very sophisticated ways to custom tailor control to the needs of the owners, minimize taxation burdens, and maximize liability protection.

WHAT IS A LIMITED LIABILITY COMPANY?

Answer: Limited liability companies combine certain characteristics of partnerships with some characteristics of corporations. They were designed to allow for maximum flexibility by blending the “pass-through” federal income tax savings inherent in partnerships with the centralization of management of corporations. Owners of limited liability companies are called “members.”

Members either exercise all management control of the business themselves, or they may elect managers, who then serve collectively on a board of managers, and manage the affairs of the business.

WHAT IS A CORPORATION?

Answer: Corporations are very common business organizations. They usually consist of owners, called shareholders, a board of directors, and officers. They are very flexible organizations from a governance and operations perspective. Texas law requires a corporation to have a president and a secretary, who may be the same person.

WHAT IS THE DIFFERENCE BETWEEN AN S CORPORATION AND C CORPORATION?

Answer: Only certain corporations may qualify to be S corporations. S corporations can only have 75 or less total shareholders, and as a general rule every shareholder must be either an individual U. S. citizen or a qualified trust. S corporations are taxed like partnerships, in that they file informational federal income tax returns and “pass through” their items of income and expense to their shareholders.

On the other hand, C corporations file their own tax returns with the IRS and pay corporate income tax. Dividends distributed to shareholders are paid with after-tax dollars, and are included in the shareholder’s taxable income. The shareholder then pays federal income tax on the dividends received. Money that flows through a C corporation is then subject to taxation at two levels, both the corporate level, and the shareholder level.