If you begin doing business, the law does not require you to register your company with the Texas Secretary of State. If you do not file any documents, you will operate as a sole proprietorship or and general partnership. While operating in this manner seems easy for tax purposes and due to the lack of formal requirements, these business entities offer no personal liability protections. A sole proprietor or general partner is not considered to be a separate legal entity from a business. Therefore, an owner can be personally liable for any business debts or judgments. Creditors can go after your home and other personal assets.
In order to protect your personal property and assets, it is always a good idea to form some type of limited liability business entity. These include:
- Limited liability partnership (LLP)
- Limited liability company (LLC)
Perhaps the most common entity for small business owners is an LLC. Formally filing with the SOS and establishing an LLC separates your personal matters from your business matters. The legal term for this separation is the “corporate veil.” Once the corporate veil is in place, you only risk losing the assets you directly put into the company.
Once you establish a corporate veil, you must ensure to maintain it. If you act like your personal and business matters are one and the same, creditors may be able to pierce the corporate veil to go after your personal assets for business debts. The following are some step you can take to maintain your corporate veil after you register your business.
- Separate your business and personal finances – You should establish bank accounts that are clearly for either business or personal use. You should never buy groceries for your family out of the business account or charge business supplies on your personal credit card. Commingling finances can threaten the corporate veil and leave you personally liable for business debts.
- Sign contracts in your business capacity only – All business contracts should clearly be between your company and the other party, and not involve you as an individual. If you sign any contracts, do so with your name followed by your business title instead of just your name. This way, if the other party alleges a breach of the contract, only the business will be liable.
- Stay in compliance with all Texas laws and requirements – Continuing to follow all state requirements for a valid business is essential to maintain the corporate veil. Filing all necessary documents, complying with Texas business laws, holding board meetings for corporations as needed, maintaining records, filing taxes, and more can help you to protect yourself from liability.
Consult a Houston Business Law Attorney as Soon as Possible
At The Weisblatt Law Firm, we know how important it is to establish and maintain a proper corporate veil. Starting a business does not require you to put your family home and personal assets at risk if you properly set up your company. Let an experienced Houston business lawyer assist you in putting necessary protections in place. Call (713) 352-0847 or contact us online to learn more about how we can help with your startup.