CHOICE OF ENTITY IN TEXAS

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CHOICE OF ENTITYIN TEXAS

• Paul J Johnson
• ShannonGracey

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Five Primary Forms

• Sole Proprietorship
• General Partnership
• Limited Partnership
• Limited Liability Company
• Corporation
• C Corp
• S Corp

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SOLE PROPRIETORSHIP

• Only one owner
• No centralized management
• Flow through entity for federal taxes
• No state franchise tax
• Ownership interests freely transferable
• No limited liability

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General Partnership
General Partnership
Partner
Partner
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General Partnership

• Multiple owners (partners)
• No centralized management
• Flow through entity for federal taxes, unless
  electing otherwise
• No state franchise tax, if entirely owned by
  natural persons
• Economic interests can be transferred, however,
  partnership interests transfers require consent
  of partners
• No limited liability for owners

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Limited Partnership
Limited Partnership
General Partner
Limited Partner
Limited Partner
Owners of General Partner
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Limited Partnership

• Unlimited owners (limited partners and general
  partners)
• Managed by general partner
• Flow through entity for federal taxes, unless
  electing otherwise
• Must pay state franchise tax, unless a passive
  entity
• Economic interests freely transferable, however,
  partnership interests transfers require consent
  of partners
• Limited liability for limited partners, but not
  for general partner

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Passive Entity(state franchise taxes)

• Avoids payment of franchise tax
• A passive entity must
• Be a general or limited partnership
• Have federal gross income of at least 90 of
  certain defined passive income, including
• Dividends and share of positive partnership
  income
• Capital gains from sale of real property
• Royalties and bonuses
• Passive income does not include rent

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Limited Liability Company
Limited Liability Company
Member
Member
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LIMITED LIABILITY COMPANY

• Unlimited owners (called members)
• Managed by managers or directly by the members
• Flow through entity for federal taxes, unless
  electing otherwise
• Must pay state franchise tax
• Economic interests can be transferred, however,
  membership interests transfers require consent of
  members
• Limited liability for all owners

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Corporation
Corporation
Shareholder
Shareholder
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Corporations

• Unlimited owners for C corp limited to 100
  owners for S corp
• Managed by board of directors
• S corp taxed as a flow through entity C corp
  taxed as a corporation
• Must pay state franchise tax
• Ownership interests can be freely transferred
  unless restricted by agreement
• Limited liability for owners