Business owners in the State of Texas face a lot of tough decisions. Perhaps the most significant of these decisions is the choice of entity the business will utilize while conducting its operations. Similar to many other states, the State of Texas offers its business owners and entrepreneurs several options. This Insight provides a summary of the tax and non-tax implications of each potential entity.
It may surprise you to learn that starting a business in Texas sometimes does not require any formal organization paperwork at all. For example, a business owner or entrepreneur may begin conducting business in Texas under his or her own name.[i]
The Tax Cuts and Jobs Act (TCJA), signed by President Trump in Dec. 2017, has significant implications for how businesses will assess the choice of entity. Prior to reform, partnerships were a very common choice of entity, but with the new provisions in TCJA, the C corporation has become an appealing option once again (but with some caveats).
The assessment by the National Law Review provides details on these significant developments in choice of entity. In general it makes a helpful point: the entity choice will continue to involve a number of considerations, such as the makeup of the investor base, capitalization structure, borrowing requirements, likelihood of distributing earnings, state tax environment, compensation and benefit considerations, participation of owners in the business, presence of foreign operations, and sale or exit strategies.