LLCs

People starting out a new Texas business are often faced with the decision to form either a corporation or an LLC. While your ultimate choice of entity depends on many factors and should be talked over with a Texas business lawyer, here are a few situations where I almost always recommend an LLC:

Small Family Owned Business

An LLC is often a good choice when one or more family members plan to start a business, keep it in the family, and provide each business partner a set percentage of ownership from the beginning.

No Plans to Offer Stock Options or Bring in Outside Investors

Similar to the small family owned business situation. An LLC might work when the ownership structure of the business is set from the beginning, you do not anticipate bringing in outside investors or additional partners, and you do not anticipate establishing an employee stock option plan or handing out equity or ownership in the company over time.

Real Property

LLCs are often used to hold and shield real property assets for landlords and other real estate investors who plan to hold onto the property for extended amounts of time without an ownership change. If you are a landlord with multiple properties, a Series LLC may be more appropriate.

Corporations

Here are a few situations where I almost always recommend a Corporation:

Outside Investors

Many times, if you have outside investors you will need to consider either a corporation or a limited partnership. The corporate entity provides much more flexibility for establishing different classes of ownership (preferred stock, common stock, and different series with different values, etc.). While many of these ideas can now be recreated in LLCs, the extra drafting time and expense is rarely worth it.

Offering Stock Options

If you plan to offer stock options to employees or gradually provide ownership interest to someone over time (vesting), a corporation is usually the best way to go.