If you plan on starting a new business in Austin, Texas, you should contact an Austin business lawyer to help you work through the various factors that effect your choice of entity type. There are many different types of entities and many different factors to consider when choosing the appropriate entity type. Factors to consider include: goals of the business, number of owners, tax consequences, owner liability for debts of the company, size of the company, availability of insurance, ability to offer ownership to employees, existence of outside investors, ease of ownership transferability, ability to raise outside capital, risks involved with your particular business, ownership anonymity, and many others. Once these factors are evaluated, the pros and cons of the various entity types are weighed, taking into account the varying state laws.

Texas business entity types include:

• C Corporations
• S Corporations
• Limited Liability Companies (LLC)
• Series Limited Liability Companies (SLLC)
• General Partnerships
• Limited Partnerships (LP)
• Limited Liability Partnerships (LLP)
• Limited Liability Limited Partnerships (LLLP)
• Professional Corporations (PC)
• Professional Associations (PA)
• Professional Limited Liability Companies (PLLC)
• Sole Proprietorships
• Non-profit Corporations
• Joint Ventures

Each new business has its own unique set of factors that must be evaluated before making a decision. Once an entity type is decided on, the next step is to decide in which state to establish the entity. You do not have to establish your business in the state in which it operates. Each state has a different set of laws, some more favorable to businesses than others. For instance, Delaware is a popular place to organize a company due to its business-friendly laws and courts and the customer service oriented Secretary of State’s Office. However, businesses that choose to form in one state and operate in another must register as a “foreign entity” in the state of operation. This leads to the business incurring additional registration fees and possibly additional taxes, but these costs may be outweighed by other concerns.

Once the entity type and state of formation have been decided upon, the next step is to prepare the documents that govern the entity. No matter the entity type, there are a few documents that all entities will have, but they will have different names depending on the entity type. These documents include formation documents and operating documents. For example, each entity will need its official formation document that gets filed with the appropriate government entity, usually the Secretary of State. For a Corporation this is called the Certificate of Incorporation or Articles of Incorporation; for a Limited Liability Company this is called the Certificate of Formation. Additionally, each entity will have a type of operating document, these are not usually filed with the Secretary of State. For a Corporation this is the Bylaws; for a LLC this is called the Operating Agreement; for a Partnership this is called the Partnership Agreement. This extremely important document provides the rules of governance and management for the company and sets up the framework for the relationships between the various owners, members, partners, shareholders, and/or board members.