Business Page
There are three main ways people do business in Texas: Sole proprietorship, Partnership, and Corporation. The Partnerships and Corporations have different versions, each with its own advantages and disadvantages.
Sole Proprietorship: This is just as it sounds. It is an individual who is in business and owns all of the assets of the business individually and receives all of the income, individually. The sole proprietor can have employees and can operate under a different name, but, legally, it is simply the sole proprietor doing business. This form of business offers no protection should something unfortunate happen.
About the only governmental involvement would be the filing of an assumed name certificate (D.B.A. - doing business as) which can be done through the local county clerk. The filing of such a certificate gives the sole proprietor certain rights to the business name, and most banks want this if the sole proprietor is going to open a business bank account.
Partnerships: There are two basic flavors of partnerships, general and limited. Each of these can be tailored to fit many different needs. There are some common characteristics for each. It must remembered that partnerships are legal entities unto themselves and have to be treated as such.
General Partnerships: The general partnership is the most common type of joint business arrangement. When two kids decide to open a lemonade stand, they have formed a legal partnership. In more formal arrangements, a business will prepare an agreement of how the partners will relate to each other, how they will divide ownership between them, how contributions will work, how much work is expected of each, how profit and losses will be treated. If you do not put together an agreement, then Texas has made one for you and you can find it in the Texas Uniform Partnership Act. The heart of the characteristics are that partners, as general partners, owe a very high duty of loyalty to each other, everyone shares according to his/her ownership interest, and each partner is liable for every debt of the partnership.
Limited Partnerships: The Limited Partnership is a creature of state law. The limited partnership is created by a document where there is one or more general partners and any number of limited partners. These limited partnerships are registered with the Texas Secretary of State in Austin and have a certain required structure and paperwork. The general partner(s) will be the partner(s) actually running the venture, and the limited partner(s) will be more like investors who have purchased stock. The general partner(s) are individually liable for all of the debts of the partnership, while the limited partner(s) can lose no more than his/her/their investment in the partnership.
Corporations: Corporations come in many different shapes and sizes, but all are state-created entities which stand totally on their own. They can be public or private, large or small, have varying tax considerations, be for professionals and for general businesses. These state-created businesses’ main job is to form a separate legal entity to give protection to the stockholders, and to allow for the pooling of resources to further the owners’ economic gains. There is an entire Code written to set out the major framework, with the only real limitation being the economic needs of the investor.
First and foremost in the minds of the shareholders is that they cannot be held liable for most of the economic losses of the corporation. There are some governmental debts which may attach to the individual, and, obviously ,personal guarantees cause their own liability; but, absent a piercing of the corporate veil, which is difficult to do, stockholders are protected.
Texas Business Corporation Act:: After you arrive at the Texas Quick Search page, select "Texas Business Corporation Act" from the Code drop down menu. (More)
