Texas law recognizes a number of business entities, and the subtle differences between them can be confusing. If you’re involved in a Texas business dispute, it pays to understand the distinctions between the most common businesses entities because your rights may be affected by the type of business involved.
The most basic type of business is the sole proprietorship, which is a business run by an individual who hasn’t registered another entity type with the Secretary of State. It’s important to keep in mind that any time a business has more than one owner, it cannot be a sole proprietorship. A sole proprietorship offers no limited liability protection for its owners, meaning that, in a lawsuit against a sole proprietorship, its owners’ assets will be on the hook if the sole proprietor loses.
A general partnership is another business type that can exist without making a filing with the Texas Secretary of State. A partnership exists when two or more people participate in a joint enterprise with the intent to share its profits and losses. A general partnership can be formed even without either partner intending to be a part of a partnership. Like a sole proprietorship, a general partnership provides no limited liability protection for its owners.
Texas law also recognizes limited partnerships and limited liability partnership, both of which can offer their owners limited liability protection. That limited liability means that the business owners’ assets likely won’t be in jeopardy if the business loses a lawsuit and can’t satisfy the judgment.
Limited Liability Companies and Corporations
Unlike sole proprietorships and general partnerships, limited liability companies (commonly called “LLCs”) and corporations can be formed only by making the appropriate filing with the Secretary of State and paying a fee. LLCs and corporations can have one or more owners and offer their owners limited liability protection.
If you’re involved in a Texas business dispute, it’s important to understand the types of businesses involved and how the law treats them and their owners. Seek the counsel of an experienced Houston business dispute attorney to help evaluate your case and preserve your rights.