Legal Structure and Name
Determine the basic legal structure of the business and properly record the business name. There are several legal structures available for businesses operating in Texas. Each structure is listed below with a brief description of the entity.
A sole proprietorship exists when a single individual operates a business and owns all assets. A sole proprietor is personally liable for all debts, and business ownership is nontransferable. Under a sole proprietorship, the life of the business is limited to the life of the individual proprietor. The sole proprietorship makes no legal distinction between personal and business debts, and it does not require a separate income tax return. A sole proprietorship is often operated under the name of the owner. Whenever operating a business under a name other than the sole proprietor, an Assumed Name Certificate must be filed with the county clerk. Assumed Name Certificates are discussed later in this section.
• Simple and inexpensive to establish, profits are taxed only once at the owner’s rate,
losses are deducted from other personal income.
• A sole proprietorship is not a separate legal entity.
• The owner has unlimited liability for business debts and any judgments against the
• The owner is considered self‐employed and pays self‐ employment tax through his/her
personal income tax return.
A general partnership exists when two or more individuals or businesses join to operate a business. Under a general partnership, a separate business entity exists, but creditors can still look to the partners’ personal assets for satisfaction of debts. General partners share equally in assets and liabilities. A general partnership requires an annual partnership income tax return (separate from the partners’ personal returns). A general partnership may be operated under the names of the owners, or a different name. In either case, an Assumed Name Certificate must be filed with the county clerk.
• Relatively easy to establish.
• Startup costs can be shared.
• Profits and losses flow through owners’ tax returns.
• Shared responsibility and liability may provide complementary skills, financial cushion.
• A partnership is not a separate legal entity.
• Profits must be shared.
• Owners have unlimited liability for business debts and judgments.
• May be difficult to transfer ownership.
• Shared responsibility and liability may result in disagreements.
A limited partnership is a partnership formed by two or more persons or entities, under the laws of Texas, and having one or more general partners and one or more limited partners. General partners share equally in debts and assets, while limited partners have limited debt obligations. A limited partnership must be registered with the Secretary of State. (See next section for details on the business name.
Registered Limited Liability Partnership
A registered limited liability partnership is a general partnership that has been registered with the Secretary of State. A partner’s liability in a registered limited liability partnership differs from that of an ordinary partnership. In a registered limited liability partnership, a partner is not individually liable, under some circumstances, for debts and obligations of the partnership arising from errors, omissions, negligence, incompetence, or malfeasance committed in the course of business by others in the partnership.
A corporation (Subchapter C or S) is created when two or more individuals, partnerships, or other entities join together to form a separate entity for the purpose of operating a business in the state. A corporation has its own legal identity, separate from its owners. The corporation offers protection to the business owners’ personal assets from debts and liabilities relating to the operation of the corporation. Taxation of the corporation varies depending on the type of corporation formed. A corporation must be registered with the Secretary of State.
• Ability to raise capital through sale of stock.
• Easy transfer of ownership.
• Shareholders risk only their investment.
• Costs of benefits for employees and officers can be deducted as expenses.
• Can elect Subchapter S status (if qualified) with the IRS, enabling flow through taxation.
• Incorporating requires more time and money to startup.
• Rules must be strictly followed to maintain corporate status and legal separation.
• Monitored by federal, state and local agencies, resulting in more paperwork.
• Corporate profits may be taxed twice: at corporate level and as dividends on personal
(1) Subchapter C
Corporation is taxed at a higher rate than an individual. The owners are not taxed personally for profits; however, the owners do pay personal taxes on any salaries and/or dividends, and the corporation is also taxed on the profits.
(2) Subchapter S
Corporations may deduct business losses on personal income tax returns, similar to a partnership. The Subchapter S Corporation also offers alternative methods for distributing the business income to the owners.
Limited Liability Company
A limited liability company is an unincorporated business entity which shares some of the aspects of Subchapter S Corporations and limited partnerships, and yet has more flexibility than more traditional business entities. The limited liability company is designed to provide its owners with limited liability and pass-through tax advantages without the restrictions imposed on Subchapter S Corporations and limited partnerships. A limited liability company must be registered with the Secretary of State
• Separate legal entity
• Can elect to be taxed as a partnership (flow through taxation)
• Easier to establish and maintain than a corporation.
• Offers more flexibility than a corporation.
• Relatively new structure has not been thoroughly tested through the courts.
• More complex startup requirements and costs.
• May dissolve at death of member.
Register Name with the State
Once the legal structure of the business has been determined, and if a separate business name will be used, the business name must be registered with the Secretary of State and/or the county clerk’s office. All businesses operating in Texas as limited partnerships, registered limited liability partnerships, limited liability companies, corporations, professional corporations, non-profit corporations, and professional associations must register with the Secretary of State. If a corporation will transact business under names other than that stated in the articles of incorporation, the corporation must file an Assumed Name Certificate with the Secretary of State, and with the county clerk in which the principal office and registered office of the corporation are located.Secretary of State Corporations Section P.O. Box 12887 Austin, Texas 78711-3697 (512) 463-5701 http://www.sos.state.tx.us/corp/index.shtml
Contact the Corporations Section
|Section Mailing Address:
Secretary of State
P.O. Box 13697
Austin, Texas 78711
|Section Delivery Address:
Secretary of State
Austin, Texas 78701
Section Hours of Operation:
8:00 a.m. to 5:00 p.m. Central Time, Monday through Friday
- Public Information & Response Team
Information Requests—preliminary name availability opinions, information lookup, general questions
Phone – (512) 463-5555Records Requests—copies or certificates
Phone: (512) 463-5578
- Document Examiners
New Filings Team—formation, registration, merger, conversion, name reservation
Phone: (512) 463-5583
Change Filings Team—correction, amendment, termination, reinstatement, assumed name
Phone: (512) 463-5582
Revenue Team—payment questions, questions about receipt of faxes
Phone: (512) 475-2814
- Reports Unit—nonprofit and limited partnership periodic reports, professional association annual statements
Phone: (512) 475-2705
Phone: (512) 463-9760
Legal Department—general information and specific filing questions
While our attorneys and staff make every effort to assist you with your filing questions, we are a ministerial filing office, and our employees, including staff attorneys, cannot offer legal or business advice to the public.
Phone: (512) 463-5586
Filing the Assume Name with the County Clerk
Be prepared to provide the business name, mailing address, city, state, zip, expected period of operation, business type, and owner information.
Period of operation is the period of time the business will use the name. Ten years is the maximum length of time an assumed name filing is valid. However, if the name will be used for a period of less than ten years, indicate this on the form. Note that names must also be renewed every ten years.
Business type refers to the legal structure of the business. Indicate whether the business will operate as a corporation, partnership, sole proprietorship, etc.
Owner information is the name(s) of the owner(s), personal address(es), and signature(s). All owners’ signatures must be notarized. This service is sometimes offered at the county clerk’s office. The form cannot be filed until all owners have signed it and all signatures have been notarized.
The following information will be helpful in filing the Assumed Name Certificate in the county the business will operate.
First, write down the name of the business you will be considering. Pay close attention to capitalization, spacing, punctuation, etc. Consider this carefully as this name will identify the business to the public.
Next, search the county records for that exact business name in the assumed name books or computer. An assumed name filing is valid for ten years, so search records for the last ten years to verify that the name is available. One book will not necessarily encompass one year of filings, so check the front of the book for dates. Some records are computerized; however, a computerized index may not contain ten years of filing history. Use the computer for the period it covers, and then use the books for any of the remaining ten years. If the business name has been used, look in the margin to see if it has been abandoned. If the name has been abandoned, it can legally be used again. Many county clerk offices will provide a name search service for a nominal fee. The whole search process will often be taken care of through the mail. Please contact the local county clerk for verification of their process.
Finally, if the company name is available, fill out the assumed name form and have it notarized. Then file it with the county clerk’s office. The county clerk will keep the original Assumed Name Certificate, so be sure to request several certified copies (at least one for the bank and one for your business records). For filing fee information and accepted form of payment, contact the local county clerk’s office. Most county clerk offices accept cash, certified checks, or money orders. If processing via mail, send the forms by certified mail with a return receipt requested to verify receipt by the county clerk.
For more information on this type of structure, contact:
HIDALGO COUNTY CLERK’S OFFICE
P.O. BOX 58 / 100 N. CLOSNER
EDINBURG, TEXAS 78540
Office: (956) 318-2100
Toll Free: (888) 318-2811