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Entity Formation

The following business entities are some of the most common business entities used and formed in Texas:

  • General Partnership
  • Limited Liability Partnership
  • Limited Partnership
  • Limited Liability Company
  • Corporation

How do you go about deciding which entity to choose to form your business? This decision will be based upon, in large part, the type of business you are creating and the extent to which the entity will protect its principals from personal liability. A very brief description/definition of the aforementioned entities is set forth below:

A general partnership is a partnership in which all partners participate fully in running the business and share equally in profits and losses. While forming a general partnership is easy (there are no filing fees or filing formalities), partners of a general partnership are typically jointly and severally liable for all debts and obligations of the general partnership.

A limited liability partnership is a general partnership wherein the individual liability of its partners is limited. In order to limit the liability of its general partners, a general or limited partnership may choose to register as a limited liability partnership. The Secretary of State of Texas provides a form for registration as a limited liability partnership.

Limited partnerships are partnerships comprised of one or more persons who control the business as general partner(s), and one or more persons (limited partners) who contribute capital and share profits but who do not manage the business and are liable only for their amount of their contribution to the limited partnership.

A limited liability company is a statutorily created entity comprised of members with limited liability. Limited liability companies can be managed by either their members or managers.

A corporation is an entity that has the authority to act as a single person distinct from the shareholders that make up the corporation. Some of the advantages to operating a corporation include its limited liability for shareholders, centralization of management and status as a separate legal entity.