Anyone can set up a corporation or limited liability company ("LLC") relatively quickly under Texas law. The Texas Secretary of State website is a great (although complex) tool for comparing business entities such as sole proprietorships (the default business entity), partnerships, limited partnerships, corporations, and limited liability companies, among others.
It is also a valuable resource for keeping track of the numerous rules governing administrative requirements, necessary filings, and payment of fees. While it is relatively easy to set up a business entity, there are many considerations to take into account before making your selection.
An LLC will protect me from personal liability, right?
Many lawyers tout the benefits of an LLC or corporation as being the mechanism to insulate the owner from personal liability of the business entity. And this is undoubtedly true, as far as it goes. But most lenders, landlords, or other principals require personal guarantees from the owner, especially if the business is newly formed and/or does not have a reliable credit history.
A personal guarantee reduces the risk associated with the contract because it gives the person or company with whom you do business the right to pursue your personal assets if the business fails to repay the debt or otherwise perform under the contract. In addition, personal guarantees are required by some government backed loans. For SBA loans, every owner of 20% or more of the business, as well as other individuals who hold key management positions, may be called upon to sign a personal guarantee.
Alternatives to personal guarantees.
But there may be other ways to negotiate and structure risk in contracts. For example, a lender may consider a limited guarantee shared by all business partners. Or an LLC may be the owner of assets that are available to lienholders so that their priority is assured.
It is key to develop a comprehensive, flexible plan that suits the goals and needs of the business owner and allows for future expansion. Reliance upon one dimensional tactics rarely serve the interests of an entrepreneur.
Although it is relatively easy to form a business entity, choosing the best entity to suit your needs is a more complex endeavor in which you would benefit from the guidance of a lawyer who is familiar with the ins-and-outs of entity formation.
The Keller Firm Can Help
Are you considering forming a business in Texas? Contact The Keller Firm to discuss your matter today.
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