Business Structure

Business Formation – Getting Your Ducks in a Row

There’s a lot that goes into starting your own businesses.  Given all that needs to be done, it’s easy to see how some business owners fail to address their business structure at the outset.

This isn’t good.  But, really, what harm is it to delay?

Until you file for an alternative form of business structure with your state’s Secretary of State, you are a sole proprietor or a partnership.

That might not sound so bad.  But, when you examine what that really means, you soon realize how detrimental it can be.  For partnerships and sole proprietors, the creditors of the business can reach to the personal assets of the owners.  In the case of a partnership, this means that (so long as it was within the scope of the business) creditors can even reach to Partner A’s assets for debts incurred by Partner B.  Eeek!

Timing is also important.  While you can file for an alternative business form after you’ve begun the business, those debtors with obligations that predate the change could still ask for liens on your personal assets.

Alternative business forms, such as corporations and limited liability companies, can shield personal assets from creditors or judgments.  Furthermore, they can be used to demonstrate the investment made by multiple owners as well as the ongoing commitments of the owners in both time and money. This is often just as important to avoid business-ending turmoil.

You are required to file assumed names with the Texas Secretary of State.

Even if you’re okay with the personal liability associated with sole proprietorships or partnerships, you may still be obligated to file with the Secretary of State.  In Texas, if “a person regularly conducts business or renders a professional service in this state under an assumed name other than as a corporation, limited partnership, limited liability partnership, limited liability company, or foreign filing entity” they must file a D.B.A. (“doing business as”) with the state.  That mean’s if you’re operating as “Lawnmower Man” for your sole proprietorship, you need to file with the Texas Secretary of State.  (And be wary of a trademark suit – but that’s for a different article.)  If you are in a  state other than Texas, please check with your state’s Secretary of State’s office for your requirements.

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