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Choose the Legal Entity

Three basic forms of business organization exist: proprietorship, partnership, and corporation. The form defines ownership of the enterprise and liability for its actions. The Texas Legislature Online provides links to sections of the Commercial Code for different kinds of businesses. A new site at the Small Business Administration also explains legal terms in plain English.

Sole Proprietorship

An individual may choose to operate in this most simple form as a single owner. If he/she does not call the business by his/her personal name, then the enterprise name should be registered at the nearest County Clerk's office, which records the company name as the DBA and refers to the person "doing business as... "

Partnership

If the business has more than one owner, they may decide upon a partnership. The owners can share assets and liabilities equally, or in various proportions. A partnership agreement will stipulate the terms. Some investors may want to separate their personal property from the business assets. They can become Limited Partners. Limited partnerships are required to file organizational documents with the Secretary of State.

Other investors may bear full personal liability for the business. They are General Partners. General and limited partnerships may opt to register as limited liability partnerships in order to limit liability, but are not required to do so.

Corporation

A corporation can have one or many owners, whose personal liability is limited to their investment in the enterprise. Ordinarily, creditors have no claim to the personal assets of corporate owners in the absence of fraud or other types of wrongdoing. A corporation must also register with the Secretary of State.

IMPORTANT NOTICE:
The information in this document is presented solely as technical assistance and as a resource available to entrepreneurs. The information does not serve as a substitute for legal advice or tax advice nor replace the independent judgment of an appropriate specialist. An entrepreneur should consult his/her attorney, accountant or other appropriate professional to answer specific questions about establishing various forms of business organizations, and the advantages and disadvantages of each entity.

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