Business Formation Attorney in Houston

Lawyers for Starting Your Texas Corporation or LLC with Confidence

Forming a corporation in Texas begins with making informed decisions from the start. In addition to creating a corporate structure compliant with Texas law and navigating administrative and regulatory processes, you want to be sure any risks, agreements, and relationships central to your business are properly managed.

The attorneys at Hendershot Cowart P.C. have been guiding Texas businesses on the path to success since 1987. With decades of collective experience and a multi-disciplinary team, we tailor business- and industry-specific strategies to facilitate proper entity selection, and set the stage for future growth and success.

Selecting the Right Entity for Your Texas Business

Which entity is best for your business? Broadly speaking, there are four types of entities in Texas:

• Sole Proprietorship
• Corporations
• Limited Liability Corporation (LLC)
• Partnerships

Sole Proprietorship

This is the most basic type of business structure: This is a one-person operation conducting business for profit.

Under Texas law, the sole legal requirement is that if you’re conducting business under any name but your surname, you must file a “Doing Business As” (DBA) form with the county clerk’s office in the counties where you are conducting business.

The great drawback of the sole proprietorship is that you’re personally liable for debts and obligations of the business, and if you cannot pay your bills, creditors may go after your bank account and personal possessions to satisfy the debt.

Corporations

Texas law views corporations as an entity separate from the owners, which means that when you organize a corporation you create a legal “person” that has the capacity to own property, sue and be sued, and also has to pay taxes.

Under most circumstances, a board of directors – chosen by the shareholders – governs the major operations of the corporation, including the appointment of executive officers who will conduct the day-to-day business affairs.

You can organize your corporation as a C-Corp or an S-Corp:

• C-Corps are required to pay taxes on their profits before distributing dividends to its stockholders. Additionally, shareholders pay income taxes on the dividends received, and this double taxation is one of the major drawbacks of a corporation.
• The advantage of the S-Corp is its tax structure. An S-Corp has what is called “pass-through” tax status, meaning the S-Corp does not directly pay taxes on its income, which allows S-Corps to avoid the double taxation found in C-Corps.

Texas Limited Liability Corporation (LLC)

An LLC is owned by one or more members and can be either member-managed or manager-managed. And like a corporation, executive officers can be chosen by the members or the managers, depending on whether it is member-managed or manager-managed.

Unlike corporations, there is no requirement for either an initial meeting of the owners or managers or an annual meeting.

One of the great advantages of an LLC over a corporation is the pass-through tax benefit. LLC owners do not have to file a corporate tax return. Owners simply report their share of profits and losses on their tax returns, avoiding the double taxation paid by the traditional C-Corp’s shareholders.

Partnerships

There are generally two types of partnerships:

• General Partnerships – This business structure is a slight step above the sole proprietorship and is essentially any association carried on by two or more people for a profit. Each person involved is a general partner, and they split profits and losses. One problem, however, is that if your partner loses a lot of money at their end of the business, they might sue you for half those losses.
• Limited Partnership (LP) – The LP is the next step above a general partnership and offers advantages over the latter. There are two types of partners in an LP: general partners and limited partners. General partners act much like the partners in a non-filing general partnership. They conduct business operations and are also responsible for the partnership’s debts and obligations under Texas law. Limited partners enjoy liability protection under Texas law; however, they are not allowed to participate in the management or operation of the limited partnership. They are essentially “silent partners.”

Making It Official – How to Create your Business Entity in Texas

While every business is unique, there are some general steps to take to form a legal entity in Texas:

1. Business name. One of the first steps in forming an entity is choosing a business name. The name must be distinguishable from names of other businesses currently operating in the state of Texas. The Texas Secretary of State provides information about business name availability and allows business names to be reserved for up to 120 days.
2. Certificate of Formation. Some entities do not require you to file paperwork with the State of Texas; these are called non-filing entities and include Sole Proprietorship and General Partnerships. Filing entities, by contrast, must be registered with the Secretary of State in Texas. These include LLCs, Corporations, LLPs, and non-profits. These entities are legally created in Texas when a Certificate of Formation has been filed with the Texas Secretary of State. The Certificate of Formation includes relevant information about the company, including the name of the entity, purpose of the entity, management or leadership structure, names and addresses of key people, address of the principal place of business, and name and address of organizer. 
3. Registered agent. Texas requires filing entities to appoint an agent for service of process, which can be an individual (if they reside in Texas) or a corporation (domestic or foreign, and authorized to do business in Texas) that accepts legal, tax, and government documents on the corporation’s behalf if lawsuits are filed against it. A registered agent must be named in a corporation’s Certificate of Formation.
4. Create governing documents. While not required by law, governing documents outline the rules and operations of your company. For LLCs, this means drafting an Operating Agreement; for corporations, you'll need bylaws and initial meeting minutes; and for partnerships, you should prepare a comprehensive Partnership Agreement that details the rights and responsibilities of all partners. 

Hendershot Cowart P.C. can assist with the entity filing and draft bylaws or other agreements. We can also serve as the registered agent as we do for many of our corporate clients – helping ensure they do not miss or overlook important communications, including notice of lawsuits.

Recommended Documents to Govern Your New Texas Business

Often overlooked, governance documents, such as bylaws and operating agreements, govern the relationship between the shareholders and/or members.

This is important if disputes ever arise. Without appropriate governance documents, the entity will be governed by state law, which may not accurately reflect the intent of the parties.

Document Requirements for Corporations

The governing documents of a domestic corporation consist of its certificate of formation and the other documents or agreements adopted by the corporation to govern the internal affairs of the corporation.

These agreements set up ground rules for governing and running the corporation. The certificate and by-laws are binding on all shareholders and can make a great difference in the rights of shareholders and the responsibilities of officers and directors.

Documents Recommended for LLCs

Having governance documents in place is critical because these agreements will dictate how the entity is run, who has what authority, and what’s going to happen in the event of a dispute.

At minimum, such documents should include:

• The Certificate of Formation;
• A comprehensive company agreement (also called an operating agreement);
• The minutes of the first meeting of members (organizational meeting);
• Signed and issued membership certificates;
• Signed consent by the registered agent; and
• If the LLC is a series company and there are to be registered series, a certificate of registered series.

Forming a Series Limited Liability Company (Series LLC) in Texas

Though traditional corporations and LLCs are the most common types of corporate structures, some business entities may need to choose between forming multiple corporations, or a single Series Limited Liability Company (Series LLC).

Under Texas law, a Series LLC is essentially a traditional LLC that has adopted language in governing documents allowing the use of “series” (or “sub-series” or “cells”) within the framework of a single LLC. This can offer advantages over traditional LLCs, where all assets are available to satisfy the obligations and liabilities of the LLC, by insulating the assets of one entity from the liabilities and obligations of others.

Key features of Series LLCs in Texas include:

• Each sub-series within a Series LLC retains the rights of a traditional LLC, including the right to own assets, enter into contracts, provide liens or own titles, incorporate different management or ownership structures, have different business purposes, and sue or be sued.
• Assets associated with a Series LLC may be held in the name of the sub-series or in the name of the “master” LLC. Its members or managers are not liable for debts or obligations of the parent LLC or sub-series but do hold express rights and duties with each series as stated in the Company Agreement. In short, the parent LLC is protected from the liability of the series, and each series is protected from the liabilities of the parent and other LLCs.
• Though a Series LLC creates multiple cells which function as “stand-alone” entities with a single filing, they are not technically considered distinct domestic entities under Texas state law. 

While asset protection, tax benefits, low start-up costs, and less administrative upkeep make series LLCs attractive, there is a caveat to its firewall protection – it exists only with compliant formation and management. This includes incorporating necessary language into the certificate of formation and company agreements, properly accounting for the assets of each sub-series, and implementing policies for thorough record-keeping.

Houston Attorneys for Medical Practice Formation

Because the healthcare industry is governed by a range of state and federal regulations – including Stark Law, the Anti-Kickback Statute, Texas’ Prohibition against the Corporate Practice of Medicine, HIPAA, and more – ensuring compliance requires a comprehensive view of a practice’s structure, business and employment relationships.

If you are ready to start or expand a medical practice, talk to us about:

• Incorporation: P.A., PLLC, Limited Liability Partnerships, etc.
• Licensing agreements
• HIPAA, Stark, Anti-Kickback Statute, fraud and abuse, and regulatory compliance
• The Corporate Practice of Medicine doctrine
• Employment issues and non-compete agreements
• Collections and third-party payer agreements
• Whether contracting with a management service organization is right for your practice

For over 35+ years, we have earned a reputation as one of Texas' preeminent law firms handling setups, mergers, and acquisitions of medical practices for healthcare professionals.

Ready to Get Started? Call Our Business Formation Law Firm in Houston

Which structure is right for your business? Which operating agreements of contracts do you need in place to govern business relationships or protect trade secrets? Our attorneys can give you straight answers to these questions and more.

Our law firm focuses on business entity formation, organization, and planning, including:

• Choosing the best type of business entity for your needs
• Drafting governance documents and compliance plans
• Structuring equity compensation and stock option plans
• Drafting or reviewing buy-sell agreements
• Work-for-hire agreements
• Trademarks and copyright protection
• Licensing or technology development agreements
• Acquisition of key assets, equipment, or real estate
• Corporate mergers
• Corporate restructuring
• Protecting intellectual property and trade secrets with confidentiality agreements, nondisclosure agreements, and non-compete agreements
• Drafting and enforcing shareholder, partnership, and employment agreements

Ready to start your business on a sound legal foundation? Call our Houston business formation attorneys at (713) 783-3110 or reach out to us online, 24/7.

Common Questions About Business Formation in Texas

Do I Need an Attorney to Set Up an LLC?

Many online services offer to form your LLC for a low package price or monthly subscription. There is nothing wrong with wanting to be judicious in the way you spend money.

However, these off-the-shelf solutions will not help you consider the legal risks and considerations you face as a business owner, partner or executive.

A corporate formation attorney can highlight exposures and recommend agreements and compliance plans that protect your business while keeping legal costs manageable. Saving money with an off-the-shelf LLC formation will be of little consolation if your business faces litigation down the road due to faulty or missing foundational agreements or unaddressed risks.

Is A Series LLC Right For Me?

Being relatively new, Series LLCs have yet to be thoroughly tested in the courts and therefore are not for everyone. 

For some, multiple entity filings may offer more predictable asset segmentation; for others, a Series LLC may be a more attractive alternative to costly filing and maintenance expenses associated with multiple entities. For example, Series LLCs are commonly used by real estate investors, and entities with multiple lines of business or large assets. 

Series LLCs may not be the most appropriate option for entities with both for-profit and not-for-profit activities, branches with significantly higher levels of liability than others, or a need for tax and financial confidentiality between members.

What Is a Registered Agent?

A registered agent in Texas is an individual or entity designated to receive legal documents, government correspondence, and service of process (such as lawsuits or subpoenas) on behalf of your business.

An owner or employee of your business with a Texas address can serve as the registered agent. You can select an individual Texas resident, or a business entity registered with the Texas Secretary of State to act as a registered agent, such as Hendershot Cowart P.C. 

A registered agent must consent to serve in that capacity, and that consent – either in written or digital format – should be retained with your business records.

Failing to maintain a registered agent means you could miss notice of a lawsuit or other legal procedure and end up with a default judgment against you. 

Your registered agent's information is a public record and appears on the documents you file with the state.

Many business owners choose to use professional registered agent services, such as a law firm, to ensure compliance and maintain privacy, as these services provide a consistent address and reliable document handling.

Why Does my Texas LLC Need An Operating Agreement?

While Texas law doesn't legally require an operating agreement for LLCs, having one is recommended. Here’s why:

An LLC operating agreement:

• Documents how your LLC will be managed and operated day-to-day, including decision-making processes and voting rights.
• Strengthens your liability protection by clearly separating your business from personal affairs.
• Provides clear procedures for handling member disputes, potentially avoiding costly litigation. Without an agreement, your LLC automatically falls under Texas' default statutory provisions, which may not align with your intentions.
• Defines Ownership Percentages: Clearly establishes each member's ownership stake and capital contributions.
• Outlines Profit Distribution: Specifies how and when profits will be distributed among members.
• Addresses Management Structure: Clarifies whether your LLC is member-managed or manager-managed and defines roles.
• Plans for Changes: Includes provisions for adding/removing members, transferring ownership, and succession planning.

An operating agreement essentially serves as your LLC's constitution, providing structure and preventing misunderstandings that could threaten your business's success and longevity.

Setting up a business? Get started on a solid foundation. Consult our corporate formation attorneys on the best structure for your Texas business. Call (713) 783-3110 or contact us online.