Questions on starting new company

[saintsfan]

My friend and I are looking to start a small business and we are trying to decide on what structure to use, LLC, partnership etc. We are not expecting to make a lot of profit in the 1st few years just, looking for a way to stay busy on my days off. Here are a few questions that we have.

1. What is the best structure?
2. What are the costs of legal filings for a small business in Texas?
3. Are there benefits to operating as a "DBA"?

Well I know these may seem vague but we are trying to gain some experience and knowlege right now. Thanks for any input.

[Viking48]

A lot depends on the type of business. If there is any liability exposure a corporation is almost a necessity. Be careful of a partnership as one partner can obligate the other partner to debt and the partnership doesn't have to be 50-50. A buddy and I had rental partnership for about 20 years and never did anything legally - our accountant just sorted out everything at the end of the year. We just kept insurance on the property and got along well. If it's more of a hobby but you need a company name a DBA is the easiest and cheapest - you can file yourself at the county clerks office. You just have to decide how much risk is involved and how much you're willing to accept. Good luck.

[MikeV]

There are a lot of things that will enter into your decision: costs, liability, and taxes being three of them. As Viking said, the type of business may be a big factor in how you organize things. Liability issues can be addressed somewhat using a corporation (then you have to decide if you want to elect Sub-S status or not) or an LLC (then you will need to decide whether the LLC will file as a partnership or corporation). Most partnerships do have some problems with one partner's actions creating problems for the other.

As long as there is one other person besides you involved, you need to commit to writing what will happen in the instance one of you wants out, becomes disabled, dies, etc. and, if you become successful, consider life insurance to use to purchase the interest of the deceased partner (or shareholder). Since his or her interest will most likely pass to their spouse, you will want funds available to purchase that interest unless you want to be in business with their spouse. Too often this isn't done, an exit strategy, and things get kind of nasty when one or the other feels things are like they should be. Often one of the parties will feel (and rightfully so) that the other isn't pulling his or her weight and then it is downhill from there. I liken it to a marriage. Everyone is all smiles and giddy at the wedding and can't wait for the honeymoon, but no thought is given to what happens when it falls apart. And business divorces probably run at a much higher rate than they do for marriages.

A "DBA" isn't an entity choice, it is an assumed name certificate filed to indicate who is behind the "name" the public sees, i.e., your business name when it is not an entity.

You and your friend really need to sit down with an attorney and an accountant to cover all the bases as far as this goes. It will help you decide what to do and how to do it in a way that best suits your particular situation.

[saintsfan]

Thanks for the input. The business we are looking at is cleaning exteriors of houses. We are not looking to get rich, but we both are interested in developing businesses and we figured this would be a relatively inexpensive way to learn. We are not looking to invest a lot of capital, mainly in the equipment. We figured we will try it for a year or two and if it does not meet our expectations we will call it quits. We have already began working on getting the papers drawn up. We do both have some assets, but with the relatively small risk associated with this business, we decided just to get a DBA.