Starting a Business in Texas - A Basic Overview

Starting a business can be both exciting and stressful to any business owner. Many businesses who do not have the proper funding and appropriate planning frequently fail within their first year. This statement can either frighten a business owner or push them to plan better for the rough times ahead. Often the most successful businesses have good business plans and are prepared for any complications that may arise. One way of preparing is by deciding which type of business entity you will own. There are different types of legal structures or entities available for business owners in Texas. Here is a list and overview of each entity:

Sole Proprietorship

This type of business entity exists when one individuals owns the business and all the business assets are under the business owners sole ownership. In Texas, a sole proprietor is liable for all debts of the business. The business owner is also liable for any debts incurred by the business, meaning there are no personal debts and there is no need for the business to file a separate tax return. All profits and losses are the owners responsibility. The business ownership is also non-transferable and cannot be sold to another person. Most businesses are listed as operating under the name of the owner in Texas. When a business wants to use a name other than the owner's, it must complete an Assumed Name Certificate and file it with the county clerk in their area. The county clerk in each county uses different forms but the information needed for each certificate is the same. Each business must provide a business name, address, city, state, zip, business type and expected period of operation. The personal information of each owner is also required. Again this business structure makes no separation between business and personal debts or liabilities.

General Partnership

A General Partnership exists in Texas when two or more individuals or businesses form a business. In Texas, A general partnership creates a separate business entity for the business, that is separate from the owners. However, creditors can still reach the partners personal assets to pay for any outstanding debts. In most general partnerships, each general partner is given an equal share of assets and liabilities in the company. A separate tax return is filed by the partnership and each general partner is responsible for the debts of the business. In Texas, a general partnership can operate under the owners names or it can chose a different name that must be registered with the county clerk. In Texas, all general partnerships must file an Assumed Name Certificate with the county clerk. Using the Assumed name certificate is also known as a d.b.a (doing business as). Each general partnership must file this with the county clerk where the business will be maintained or conducted. The information required is the same as the Assumed Name Certificate in the sole proprietorship section.

Limited Partnerships

In Texas when a partnership of two or more persons or entities combine to have one or more general partners and one or more limited partners, a limited partnership is formed. A general partner is defined as a partner who shares equally in the assets and liabilities, but a limited partner only has limited liabilities or debts. All limited partnerships in Texas must be registered differently than general partnerships or a sole proprietorship. In Texas, each limited partnership must be filed directly with the Secretary of State

Limited Liability Partnership

In Texas, a partnership may also file its business structure as a limited liability partnership that allows certain partners to be limited in their liability towards debts of the business. Again this type of business must be registered directly with the Secretary of State.

Limited Liability Company

In Texas, this type of business entity is unincorporated but does have certain aspects of both an S corporation and limited partnerships. The LLC has protections set for the owners and has certain tax benefits not given to the S corporation. Limited liability for owners and pass through taxation are the biggest advantages of this type of formation. Owners are protected from most personal liabilities but there have been cases where the courts can find the owner using the company as an alter ego to elicit fraud and may find the owner liable personally. Business owners need to follow specific rules regarding their personal assets and business assets.

Online Resource For Small Business

Small business online refers to resources available to small business owners via the Internet. Many financial companies provide information on funding resources, business laws and terms, and management advice for small businesses. These sites enable business owners to make sound business decisions to increase the likelihood of their success.

One of the main reasons individuals looking for business online resources is to find information on ways to finance a start-up or existing business. Most lenders, including commercial banks, the Small Business Administration (SBA), and non-traditional financial companies, now provide detailed information regarding the different funding options provided. With these sites, business owners can find out if they qualify for a certain loan and compare loan terms to other available financing options. These lenders typically provide secure online loan applications as well, making the approval process faster. However, for loans that require any documentation, these may have to be faxed or mailed to the lender before the approval process can begin.

Small business online lenders also provide financial management advice to growing small businesses. From other financial websites, entrepreneurs may also be able to access glossaries of common business terms, lists of business laws, and the most up-to-date news, including stock reports. Many of these websites may provide forums that allow entrepreneurs to connect to others with similar interests to exchange ideas, opinions, and advice on business matters. Connecting to fellow business owners can help entrepreneurs to make better business decisions.

A small business online resource is a website designed to aid small business owners in every aspect of entrepreneurship, including finances and management. Most lenders, including the Small Business Administration (SBA), commercial banks, credit unions, and non-traditional loan providers, offer websites to inform business owners on different types of loans and their requirements. Other websites are run by financial companies who specialize in assisting businesses with financial counseling and management tips and advice.

A lender's small business online resource typically lists all available loans and the requirements needed to apply for one of these loans. These websites may also allow business owners to apply via a secure online application to accelerate the approval process. However, if a loan requires financial documentation, these may have to be faxed or otherwise sent to the loan provider before the approval process can begin. If a business owner already receives funding from a lender, he or she may be able to access information regarding that funding online. Borrowers can check interest rates, repayment plans, and the amount still owed.

Other small business online resources provide financial counseling and management tips to help businesses succeed. These websites offer step-by-step guides for accounting processes and business plans, glossaries for common business terms, and hundreds of articles with ideas on how to improve profitability. Business owners may also be able to join a forum to give and receive feedback amongst fellow entrepreneurs.

Going Into Business - Is it Right For You

Many of the queries my small business advisory practice fields every day relate to people, who for one reason or another, are considering going into business for themselves. Their first concern is usually about what business should they start, but really their first concern should be about whether they should go into business at all.

At first glance, this may seem a little harsh. In some respects, it is meant to be. Many of the people who ask me this question, are often in dead-end or personally meaningless jobs, or they are under financial pressure, and are looking for an escape hatch. As a result, their view of of what it means to go into business is tainted by the rose-coloured glasses they are wearing and their romantic notions about what working for themselves will be like.

This is typified by statements such as 'I can get out of bed and work whenever I like', 'no-one can boss me around', 'I can have a day off whenever I choose'. It is not that these things are not noble pursuits, it is just that the harsh reality is before all that can happen, you usually have to have put in the hard yards. Many small business owners work extreme hours, under intense pressure, often juggling more than one role and usually for many years before they can indulge in such pleasures.

The last thing budding entrepreneurs need is to be discouraged, as there will be plenty of motivation killers amongst their families and friends. What they do need is some assistance with the removal of their rose-coloured glasses and the attendant emotion. They need the ability to see the situation as it is and tools to help them make decisions based on hard facts and not on emotions. It is important to assess, up-front, whether going into business is right for them, and if it is, that they then go into business right.

Undertaking a thorough and honest self-assessment can assist with this process. This assessment is not a test with right or wrong answers, so you can't possibly fail. The goal is to assess what is right for you. Done well, a self-assessment will provide you with sufficient insight to determine whether going into business is not right for you, or that going into business may be right for you but that you need to put various things in place before you do so, or that becoming a business owner is an option for you.

A good self-assessment tool will attempt to capture your personal goals and aspirations, determine your chosen lifestyle choices and identify your current situation. It will also identify your personal strengths, and your current weaknesses against the core skills required for the management of any business.

This is important. Going into business can be a risky proposition. You need to go into business clearly having identified the areas of risk and to develop a plan to effectively manage those risks in order to increase your chances of long-term success.

For first time entrepreneurs, more often than not, the areas of weakness identified by the self-assessment usually relate to either currently being in a bad financial situation, or not having any financial management experience. The assessment identifies this as, not necessarily a pre-cursor for small business failure, but an area that requires managing to improve your chances of small business success.

If the the self-assessment indicates that the entrepreneur is in a poor financial situation, depending on the severity of the situation, it could be an indicator that going into business is not right - for now. Implementing a management plan to improve their financial position before they go into business is a better option. It may be more feasible to plan to save the cash required to support your business, and yourself before you start-up.

Should the assessment indicate a particular weakness, such as limited financial experience, it would be wise to put in place a management plan to shore up identified weaknesses. In this particular example, it may be that improving your skills and expertise by attending bookkeeping courses at your local community college or by having your accountant at your side to teach you how to keep your books. The end result is that you may not know how to keep everyone else's financial records but you will be able to adequately manage and understand your own, thus reducing the ongoing risk to your business.

While it is important to encourage people to discover their 'inner entrepreneur', it is vital entrepreneurs do so while making every effort to minimise their personal risk as well as the ongoing business risk. Undertaking a thorough and honest self-assessment and using the insight it produces as the basis for the assessment, planning and management of all potential business opportunities is essential to the long-term success and viability of the business.

Karen L. Paiyo is an Australian Small Business Counsellor, supporting and nurturing the spirit of entrepreneurship in the Asia Pacific Region. Karen empowers small business owners by transferring to them the skills and expertise needed to help them take their business ideas from creative concept to profitable reality, faster and with less risk.