Deciding What Business Type to Start

When you take on the task of starting a business here in Austin, there are a number of routes you could go. Do you want to start a sole proprietorship? Partnership? LLC? Corporation? Nonprofit? Do you know what it takes to start each of these? Let's take a look.

Sole Proprietorships and Partnerships

This is the starting path for many businesses in the Austin, TX area. In a sole proprietorship one person operates the business. That person is the business.  When it comes time to report taxes, they are all reported on the personal taxes of the owner and any profit or loss relating to the business is also the responsibility of that owner.

Partnerships on the other hand, have at least two people who own percentages of the business. Each person establishes their percentage of ownership via a written partnership agreement. That percentage of the company profit or loss will be reported on their personal tax returns, and all members of the partnership are liable for any losses or legal actions against the company, except in the case of a limited partnership, where the limited partner is not responsible.

Limited Liability Corporation

A Limited Liability Corporation (LLC) offers some protection to the owners that is lacking in a sole proprietorship or partnership.  An LLC limits the personal liability of the business owner or owners. By law, an LLC is an independent legal entity, so only the assets of the company are on the line when there is a legal action against the company. While there is this added protection, profits are recorded the same way as in a sole proprietorship or partnership-- on the personal taxes of the owner or owners. But, there is a lot involved with setting up a proper LLC in Texas.

Corporation

Corporations are like moving into the big leagues, at least on paper. Corporations are treated as a separate legal and tax entity. That means the people who own it are no longer liable when there are actions against the corporation.

Nor are the company's profits recorded on personal taxes, but moved to corporate tax structures (unless you are an S-Corporation). There are new levels of tax deductions for corporations. However, there are C Corporations and S Corporations, and each offer different advantages and drawbacks. For instance, an S Corporation makes sense for the smaller business who would like protection from personal liability in the event of a lawsuit, combined with the ease of tax reporting that comes along with use of a personal tax return.

Nonprofit Corporation

In order to set up a nonprofit corporation, the work of the corporation must be for a charitable, religious, educational, literary or scientific purpose. In addition to all the corporation protections, they have a more benevolent tax structure and nonprofits can also take grants and donations to operate.

Sorting through all these decision can be difficult for the new businessperson. This is why you may want to call in the professional advice of a business attorney to point you in the right direction. 

Our business lawyers offer a wealth of experience to help your Austin business succeed!