Starting a Business in Texas – A Basic Overview


Starting a business can be both exciting and stressful to any business owner. Many businesses who do not have the proper funding and appropriate planning frequently fail within their first year. This statement can either frighten a business owner or push them to plan better for the rough times ahead. Often the most successful businesses have good business plans and are prepared for any complications that may arise. One way of preparing is by deciding which type of business entity you will own. There are different types of legal structures or entities available for business owners in Texas. Here is a list and overview of each entity:

Sole Proprietorship

This type of business entity exists when one individuals owns the business and all the business assets are under the business owners sole ownership. In Texas, a sole proprietor is liable for all debts of the business. The business owner is also liable for any debts incurred by the business, meaning there are no personal debts and there is no need for the business to file a separate tax return. All profits and losses are the owners responsibility. The business ownership is also non-transferable and cannot be sold to another person. Most businesses are listed as operating under the name of the owner in Texas. When a business wants to use a name other than the owner’s, it must complete an Assumed Name Certificate and file it with the county clerk in their area. The county clerk in each county uses different forms but the information needed for each certificate is the same. Each business must provide a business name, address, city, state, zip, business type and expected period of operation. The personal information of each owner is also required. Again this business structure makes no separation between business and personal debts or liabilities.

General Partnership

A General Partnership exists in Texas when two or more individuals or businesses form a business. In Texas, A general partnership creates a separate business entity for the business, that is separate from the owners. However, creditors can still reach the partners personal assets to pay for any outstanding debts. In most general partnerships, each general partner is given an equal share of assets and liabilities in the company. A separate tax return is filed by the partnership and each general partner is responsible for the debts of the business. In Texas, a general partnership can operate under the owners names or it can chose a different name that must be registered with the county clerk. In Texas, all general partnerships must file an Assumed Name Certificate with the county clerk. Using the Assumed name certificate is also known as a d.b.a (doing business as). Each general partnership must file this with the county clerk where the business will be maintained or conducted. The information required is the same as the Assumed Name Certificate in the sole proprietorship section.

Limited Partnerships

In Texas when a partnership of two or more persons or entities combine to have one or more general partners and one or more limited partners, a limited partnership is formed. A general partner is defined as a partner who shares equally in the assets and liabilities, but a limited partner only has limited liabilities or debts. All limited partnerships in Texas must be registered differently than general partnerships or a sole proprietorship. In Texas, each limited partnership must be filed directly with the Secretary of State. This is known as a certificate of formation. The Secretary of State provides information regarding the formation of these types of business structures at their website at http://www.sos.state.tx.us/corp/businessstructure.shtml. There must a partnership agreement formed and the business must operate according to the agreement.

Limited Liability Partnership

In Texas, a partnership may also file its business structure as a limited liability partnership that allows certain partners to be limited in their liability towards debts of the business. Again this type of business must be registered directly with the Secretary of State.

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