Times are tough, and you have decided that opening a business is the best way to generate some additional income. As you know, entrepreneurship has enormous potential for success, but it also carries certain legal risks, including the need to establish a business’s legal proprietorship.

To protect yourself and your business, you need to understand the legal structure of your new business and the implications of each proprietorship option. In this article, we’ll survey some of the main legal considerations of starting a business in Dallas and examine five of the most popular proprietorship options.

Before diving into the legal framework, it’s important to understand that there’s no one-size-fits-all solution. The correct proprietorship option for your business will depend upon your individual financial and legal circumstances, so it’s essential to consult with an experienced lawyer specialized in business law before you make your final decision.

1. Sole Proprietorship

A sole proprietorship is the simplest way to establish your business. In this format, the individual person owns all of the assets of the business and is fully liable for any debts or obligations.

In Dallas, the legal requirements for establishing a sole proprietorship are low. Generally speaking, you must obtain a business license from the city and provide certain forms to the State of Texas. The startup costs are usually relatively inexpensive.

The key to a successful sole proprietorship is to keep your finances separate from your personal finances. You should establish a separate bank account and open a business credit card if your business requires any major purchases.

If you’re running a business with a low risk of exposure to legal action, a sole proprietorship might be the right option. However, as we’ll discuss shortly, you should consider alternative proprietorship options if your business involves any financial or legal exposure to other parties.

2. Partnership

If you need a partner to help grow your business, then a partnership might be the best option.

In a partnership, two or more legal entities form a business together, and the parties share ownership of the assets. Different types of partnerships have different structures of liability – for example, in a general partnership, the partners share liability, while in a limited partnership, only certain partners are liable for the debt.

In Texas, if you’re forming a general partnership, then you will need to file a Document of Partnership with the Secretary of State. Other types of partnerships will require additional paperwork.

Partnerships are generally a great choice for businesses that need additional capital or skillsets to expand.

3. Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a popular option for business owners who need additional asset protection.

In an LLC, each party’s assets and personal liability are protected by the liabilities of the company. This means that, in the event of legal action, the individual’s personal assets can’t be targeted.

In Dallas, the legal requirements for forming an LLC are more complex than a sole proprietorship or a partnership. Generally speaking, you’ll need to compose an Operating Agreement and file certain paperwork with the Secretary of State.

If you’re expecting frequent legal action or high liability exposure, an LLC is a great option.

4. Professional Corporation

If you’re running a business in a regulated industry (such as law, medicine, or real estate), then you should consider a Professional Corporation.

A Professional Corporation is a special type of corporation designed for legally regulated professions. Generally speaking, the profession in question must have an established code of ethics and procedures in place.

In Texas, the legal requirements for forming a Professional Corporation are stricter than for an LLC. Generally, you’ll need to file paperwork with the Secretary of State, pay applicable taxes, and your business may need to be approved by the Texas Board of Professional Corporations.

5. Non-Profit

If you’re running an entity that is organized for charitable purposes, then forming a non-profit organization may be the best choice.

In Dallas, the legal requirements for establishing a non-profit are strict. Generally speaking, you’ll need to form your entity, compose an organization-specific Constitution, and then apply for tax-exempt status with the Internal Revenue Service (IRS).

Non-profits can also be beneficial for companies that wish to issue tax-deductible donations to customers, clients, or vendors.

Final considerations

When it comes to establishing your business, the legal framework is just as important as the business plan. Choosing the wrong proprietorship option can lead to financial losses and legal exposure, so it’s essential to take your time and consider your options carefully.

If you’re starting a business in Dallas and you’re not sure which legal format is right for you, then it’s best to seek legal guidance from an attorney. At UpCounsel, you can access experienced lawyers who specialize in business proprietorship, review their profiles and client ratings, and get the help you need in minutes.