Texas corporation law defines how a business must be formed and maintained to receive legal benefits associated with certain legal business entities.
Understanding Texas corporation law is important for those interested in growing their non-filing business entity into a corporate entity.
Defining Texas Business Entities
The type of business you seek to create will determine the Texas corporate law you will have to abide by. There are two groups of business entities in Texas. They are filing and non-filing business entities.
Non-Filing Texas Business Entities
If you form a business without taking any formal action with the State of Texas, you have created a non-filing business. The two most common non-filing business types are the general partnership and sole proprietorship.
Sole Proprietorship
Sole proprietorship is the most basic form of Texas business. The basic concept is one person running a business for profit.
The only required filing is that if the person is using a name for the business other than their own actual name, they must file a “Doing Business As (DBA)” with the County Clerk Office in the county where they are doing business.
The process is simple, but the downside is that the owner is personally liable for all business debts and obligations.
General Partnership
Texas general partnerships do not require filing. In fact they do not even have to be intentional. If a court determines that two people are running a business together, it will be deemed a general partnership.
Under Texas business law, partners split profits and losses. Much like sole proprietorships, the owners are personally liable, but now creditors have multiple people to go after.
Filing Texas Business Entities
Filing entities are more formal business entities that must meet certain requirements to exist in their respective forms. The formation process is more complex than for non-filing businesses and should be executed under the guidance of an experienced attorney who understands Texas corporation law.
All limited liability partnerships, limited liability companies, and corporations must file a certificate of formation with the Texas Secretary of State. This document includes important details about the business entity and its operations. The form must include:
- Name of the business;
- The type of business;
- Any lawful purpose for filing the paperwork;
- The length of time the corporation will exist, unless there is no end date;
- Contact information for the initial registered representative; and
- Each organizer’s name and address.
Before filing the certificate of formation, you should always check to make sure that the chosen business name is actually available. This will help make the process smoother.
Limited Partnership
Unlike a non-filing general partnership, under Texas corporate law, limited partnerships enjoy liability protection. A partnership agreement must be drafted as part of the formation.
A limited partnership usually consists of general partners who run the business and limited partners who operate more like silent investors in the business. It is best to consult a CPA or Texas corporation law attorney when forming limited partnership agreements.
Corporations
Texas corporation law views corporations as separate entities from their owners. They function as a separate person who must pay taxes and can file lawsuits, be sued, and own property.
Corporations are owned by shareholders who each hold a certain number of company shares. Shareholders are typically not involved in the day-to-day management of the business.
Corporate bylaws govern the management structure of the corporation. There are multiple types of corporations with different structures, benefits, and tax obligations.
Limited Liability Company
Limited liability companies (LLCs) can be operated by managers or members. A certificate of formation is necessary for the LLC to become a legal entity.
An LLC is different from a corporation or a limited partnership because those involved have the flexibility to determine how they would like to form the structure of the business. The details of the LLC structure are outlined in an operating agreement, which is similar to corporate bylaws.
Hiring a Texas Corporation Law Attorney
One of the most important steps when forming or growing your business is choosing which type of legal entity best fits your needs.
The Curley Law Firm has over a decade of experience in advising business owners on Texas corporate law and helping them understand the advantages and disadvantages of all options.
We can help you generate and file the appropriate paperwork, form company agreements or bylaws, and identify any regulatory requirements for your specific business. Texas corporate law can be complex and confusing.
Let us help you start your business on a solid foundation. Contact us to schedule an evaluation.