The correct business entity form is an important preventive law decision to limit owner liability. In Texas, a business may be organized as a:

    •   sole proprietorship

    •   corporation - see sample “Corporation Questionnaire” for formation information

    •   limited liability company - see sample “LLC Questionnaire” for formation information

    •   limited partnership

    •   general partnership

    •   registered limited liability partnership

    •   registered limited liability limited partnership

    •   statutory close corporation.

The correct choice depends on potential business liabilities, tax issues (federal income tax and state margins/franchise tax), anticipated financing sources, initial structuring costs, ongoing maintenance costs and employee benefit plans. Too many small businesses choose their form of business entity by default. For example, business owners sometimes have a “handshake agreement” which, under the law, is actually a general partnership creating unlimited owner liabilities. The form of business entity may usually be changed at a later time but typically the costs are much higher and previously incurred liabilities cannot be eliminated.