Austin Business Formation Attorney Natalie Lynch can assist you with all aspects of small business formation. In particular, Treaty Oak ELG can assist in differentiating between entity types to determine the most successful strategy form for your business and its stakeholders. Treaty Oak ELG will consult with you and tailor your business formation strategy to fit your specific needs.
Top 5 Mistakes Made With Business Formation
1. Not Using Proper Documentation. Having all paperwork and documentation done correctly can prevent timely and expensive problems down the road. Depending on the nature of your business and ownership, documents need to be specifically tailored to your business needs in order to cover all relevant issues. Additionally, some forms, policies, and procedures are not strictly required but are incredibly important, particularly if you believe your company will seek investment or acquisition.
2. Not Using an Attorney. The decision about which entity to form, and correctly forming that entity, often needs the assistance of an experienced attorney. In the event that a business entity gets into a dispute amongst its owners, with another business, or has other legal trouble, not having the correct entity and documentation can be extremely costly. Other considerations such as, the countries of operation, the industry, or the types of funding must be evaluated before your entity type is chosen.
3. Choosing the Wrong Entity Type. Often, businesses will begin doing business without with an overly simple or overly complicated business structure. Treaty Oak ELG believes, particularly for startups, that your Austin startup’s tolerance for formalities is fundamental to the success of your company and its future worth. Other businesses may choose a type of entity that exposes them to too much taxation or reporting but your Austin startup should be smarter.. Treaty Oak ELG can consult with your business in determining what entity should be formed for the best protection and profitability for your business. This step alone will save your business time and money.
4. Not Using a Tax Professional. Attorneys are important for legal and strategic advice just as tax professionals are important for taxation and strategic advice. It is vitally important that Austin’s startups engage with taxation professionals prior to making decisions about entity formation and prior to spending or earning your first dollars. Treaty Oak ELG collaborates well with local taxation professionals and can refer you to a taxation professional that does exceptional work with Austin’s startups.
5. Old Formation Templates. Natalie Lynch recommends avoiding free templates to create your organizational documents. In several recent instances, Treaty Oak ELG helped entities re-issue organizational documents after learning that clients used free templates that refer to the laws prior to the Texas Business Organizational Code. The new code changes some of the reporting and other obligations, changes permissible business structures, and alters formation requirements. Using an old template that refers to old laws will completely undermine the protections your Austin start up’s entrepreneurs intended to create for it.
Types of Business Formation:
Corporations
Corporations are distinct legal entities with legal “personhood.” In a corporation, directors run the organization with the oversight of a board of directors. Corporations have the benefit of removing ownership and control away from any one individual so that the group jointly owns and runs the entity through and for the corporation. The taxing of corporations can be high and complicated and any Austin startup should consult with a taxing professional before deciding which corporate taxing structure is most appropriate. The two tax structures for Austin startup corporations are:
C Corporation
C Corporations are taxed separately from the company’s shareholders, thereby separating the shareholder’s personal assets from company lawsuits or debts. C Corporations are separate taxable entities, and are the most common form of large corporation. Treaty Oak ELG can work closely with your tax professional to ensure this is the best formation type for your organization. With your tax professional’s support, Treaty Oak ELG can draft documents and guide your organization through the formation of a C Corporation.
S Corporation
An S Corporation has a precise tax status with the Internal Revenue Service. The tax liability “passes through” the corporation and falls to the individual owners or shareholders. This prevents double taxation and is the most commonly selected corporation-type for Austin startups. The S Corporation status generally allows for single taxation while still maintaining a protective separation between the business owner and the corporation. Treaty Oak ELG will work collaboratively with your company and it’s taxing advisors to draft the documents and guild your Austin startup in creating an S Corporation.
Professional Corporation
A Professional Corporation, or “PC,” is a corporation created for licensed professionals, such as, lawyers, accountants, and architects. A Professional Corporation has limits for liability and can protect a shareholder well. Some professionals are required to form PCs and Natalie Lynch can assist your Austin startup in determining if your entity is required to form a PC.
Limited Liability Company
A Limited Liability Company, commonly known as an “LLC,” is a company that is intended to protect its members from personal liability for the debts and liabilities of the company. The LLC is a separate taxable entity and members will work with their tax professional to determine the most appropriate taxation strategy. LLCs are an excellent choice for Austin startups because it provides the protections but without the formalities and of a corporate structure.
Professional Limited Liability Company
Some professionals are required to form as a Professional Limited Liability Company, or a “PLLC.” A PLLC generally operates like a LLC except that there are professional certifications required for company leaders. PLLCs are excellent choices for Austin startups that provide professional services.
Sole Proprietorship
A Sole Proprietorship is an unincorporated simple entity owned by one person. With a sole proprietorship, the owner is personally responsible for all the liabilities of the business. Treaty Oak ELG will never recommend anyone operate as a sole proprietorship.
General Partnership
A General Partnership is an unincorporated business entity formed by two or more partners, in which the partners are generally liable for the debts and obligations of the business. This is the simplest multi-party entity; however, it is not generally protective enough for an Austin startup’s stakeholders.
Limited Partnership
Many entities choose to become a Texas Limited Partnership while they are seeking investment because of the low reporting requirements. For example, the partnership agreement is not filed with the state. Treaty Oak ELG would be pleased to help you decide if a Limited Partnership is appropriate for your Austin startup.
Limited Liability Partnership
A Limited Liability Partnership, or “LLP,” is similar to a General Partnership; however, in a Limited Liability Partnership, the partners are protected from individual liability. The LLP is a hybrid of an LLC and a General Partnership. This entity type is most appropriate for individuals that know they have a strong history of working together. Treaty Oak ELG can assist your Austin Start up while evaluating if a LLP is a good option for your organization.
Non-Citizen Business Owners
Starting a business in the US as a non-citizen does have some hurtles. Namely, depending on your resident or citizen status, there can be additional hurdles to register with the IRS. Another challange my international clientele faces is a local business address. Treaty Oak ELG deals with non-citizens, visa holders, and permanent residents wanting to start their US based company in Texas and can make the process significantly more simple.
