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Incorporating Businesses Attorneys in The Woodlands, Texas

Starting a new business in Texas?

Some of the considerations when starting (incorporating) a new business in Texas:

The most common entity forms in Texas are the limited liability company, corporation and limited partnership. By far, the most popular for private companies (rather than publicly traded) is the limited liability company. Under the “check-the-box rules,” limited liability companies in Texas may choose to be taxed as disregarded entities (if only one owner, or husband and wife community property), a partnership (if two or more owners), a corporation or a corporation filing a S-corp election, and the choice should be made in consultation with your CPA, based on how the entity will fit into other asset holdings, your personal (or the holding company’s) tax situation and plans for growth and eventual sale.

With any of the foregoing entities, a Certificate of Formation must be filed with and accepted by the Texas Secretary of State. The founders or organizers initially decide who will serve as the registered agent for the Company with the Texas Secretary of State. If the company is a corporation, it will need an organizer, shareholders, directors and officers. If the company is a limited liability company, it will need, at a minimum, initial members or organizer(s), and perhaps managers and officers, depending on the business. A corporation needs a set of bylaws and if desired, a shareholders’ agreement detailing any restrictions on the sale of shares and any agreements on buy-outs upon death, divorce, or other buy-sell trigger events. A limited liability company needs a company agreement detailing among other things, how the company will be managed, the duties of the members, and any agreed buy-out events/buy-sell triggers and valuation formula(s). If an entity is owned 50/50, owners may consider including a “Texas Shoot-Out” provision, to provide for a partner’s exit upon unresolvable disagreement.

Even a small business entrepreneur should get proper legal guidance from an attorney who practices corporate law prior to forming the company and before approaching investors.

We believe every business should be started with “end in mind.” That end may be the growth and sale or merger of the company within a certain time frame or upon certain valuation or EBITDA multiple, to private equity, a public company or perhaps to a competitor. It may be keeping the company in the family for generations to come using a succession plan created in advance before circumstances require hasty decisions. Sometimes, you may want to employ holding companies to own subsidiaries, to separate an operating company from real estate ownership, or to isolate certain business units for later sale. Investing a small amount in proper planning with the right advisors at the beginning of the company’s life-cycle (i.e., at the formation) may result in easier transfer (and at higher value) when the time is right. We recommend that every businesses build a team of experts up front that will be with the company for the long term, namely at a minimum: (1) responsive, efficient, engaged local corporate counsel, (2) a trusted certified public accountant with mergers and acquisitions experience, and (3) an insurance broker that can evaluate your needs, advise on how to keep your costs down, and provide annual reviews. Over the years we have been part of many such teams for the success of our clients.

Lastly, as founders are planning a new company, it is an excellent time to review their own personal estate planning and life insurance, to make sure their families, businesses and partners are protected by having the proper documents and policies in place in the event that an owner, shareholder or partner dies or becomes incapacitated. A review should be done to see if life insurance or key-man life insurance is warranted, desired or affordable to fund any buy-out events.