Selecting the “right” business entity is not a matter of simply picking a limited liability company or a corporation. Texas has a well-developed business code that allow the formation of a host of different business entities as well as even series entities within certain business structures. Taking full advantage of the benefits of one business entity structure over another often involves a review of the business purpose, assets, goods or services to be sold, and the regulations applicable to that business. We help navigate the entity selection process by educating our clients on the benefits of certain entity structures over others and by ensuring that a business structure will function for the desired lifetime of that business. Our firm has extensive experience counseling clients in the formation and organization of business entities such as:
- limited liability companies (including series limited liability companies)
- series limited liability companies
- for-profit and nonprofit corporations
- real estate investment trusts
- cooperative associations
- professional associations
- professional corporations
- professional limited liability companies (including series professional limited liability companies)
- limited partnerships
- limited liability partnerships
- limited liability limited partnerships
Corporate governance and organization are frequent sources of lawsuits as businesses develop. A governance structure that may have initially worked may, over time, become the source of conflict or even worse create a deadlock. We counsel clients during the entity formation and selection process to create corporate governance structures that avoid deadlock, include dispute resolution mechanisms, and contain forced buyout provisions so that even when a dispute arises, a business can continue to efficiently function.
Priority Returns and Complex Distributions
We also help clients create complex business entities that have multiple classes of equity interests and priority distribution structures. Some businesses need to distribute income to interest holders in a priority or waterfall system (with certain owners or groups receiving income before others). Priority distribution structures are complex issues for corporate drafters and great care is required in order to create documents that carry forward the intent of the owners. Additionally, the tax provisions of governing documents for entities with priority distributions needs to match those structures, lest one owner end up inadvertently being liable for the income of another.
Businesses with Modified or Priority Voting Rights
Maintaining control of a business in the right hands is essential. Sometimes, that control needs to be in the hands of a group that is a minority interest. In that situation, the voting rights of equity interest holders needs to be modified in the business’s governing documents to ensure that the vote of that minority interest is the act of the business, regardless of the default voting provisions under the Texas Business Organizations Code. We regularly draft governing documents that contain provisions such as these, and have extensive experience counseling owners and board members on writing in terms that will stand the test of time.
Another frequent request is for certain owners to be “silent.” While this goal can be accomplished through certain business entities (such as a limited partnership), sometimes it is more financially efficient to create a silent interest structure by simply drafting that language into a limited liability company’s governing documents. As this is a matter that again relates to entity selection, it is important to consult with experienced counsel prior to picking the entity. Unwinding a bad choice is often far more expensive and time-consuming than taking the time to make the right choice up front.
Regulation of Professional Services
Certain professions in Texas require a license. While many are familiar with medical licenses, law licenses, and other similar professions, there are many lesser-known services that are also regulated by Texas state agencies. The specific service provided can have a significant effect on business entity selection, and the joint ownership of a business by two differently licensed professionals is often regulated by both the Business Organizations Code and the laws and rules applicable to each licensee’s license. When forming a business for a professional practice it is very important to engage an attorney who knows both Texas business law generally but is also familiar with the laws and regulations governing each professional licensee.