From Michael’s interview for the Masters of Estates & Probate series on ReelLawyers.com.
Sole Proprietorship/General Partnership
The sole proprietorship or general partnership is formed when one or more individuals go into business. No other action is needed. If the business is conducted under an assumed name, then the business owner(s) must file an assumed name certificate and obtain an employer identification number from the IRS.
Neither the sole proprietorship nor the general partnership offers liability protection to the business owners.
The sole proprietorship and general partnership are alter egos of the business owners. Consequently, no observation of formalities is required.
The taxation of sole proprietorships and general partnerships is very simple because sole proprietorships are disregarded entities and general partnerships offer flow through taxation of all profits and losses straight to the owners of the business Additionally, neither the sole proprietorship nor the general partnership are subject to franchise tax in the State of Texas.
Businesses that typically benefit from being structured as a sole proprietorship or general partnership include very small businesses where the business owns assets of little value and where the business owners perform the activities of the business or the business owners hire independent contractors to perform the activities of the business. Once the business takes on employees or begins to accumulate assets, the business owner should consider doing business as a statutorily created business entity to limit his exposure to the liabilities of the business and/or to protect the assets of the business from his individual liabilities.
Limited Liability Partnership
A general partnership may elect to become a limited liability partnership by filing a statement providing the following information: 1) the name of the partnership; 2) the federal tax identification number of the partnership; 3) the street address of its principal office in Texas and outside the state, if applicable; 4) the number of partners at the date of application; and 5) a brief statement of the business in which the partnership engages. A partner’s liability in a registered limited liability partnership differs from that in an
ordinary partnership. In a registered limited liability partnership, a partner is not individually liable for debts and obligations of the partnership incurred while the partnership is a registered limited liability partnership, nor is the partner liable for tortious acts committed by other partners. However, each partner is exposed to unlimited liability for torts of the partnership. For example, if the partnership owns a building and fails to maintain it and, as a consequence, a person is injured and seeks a judgment against the partnership, each partner is exposed to individual liability.