Going Into Business in Texas – Picking a Business Model
There are many business structures an entrepreneur may employ in forming his business. Each structure is somewhat different and choosing a specific business model depends on each entrepreneur’s specific needs. Below are 6 important business vehicles that any entrepreneur should explore before making their final decision to start their business.
- The Sole Proprietorship: This business structure is the most simple. The business is comprised of a single individual. There is no legal separation from the entrepreneur and his business. The proprietorship and the entrepreneur are taxed as one entity. The entrepreneur reports all income and deductible expenses for the proprietorship on his personal income tax. There is no personal protection from liability for the owner with this business structure. The entrepreneur is personally liable for anything that happens with his business and receives no protection.
- The Corporation: This business structure is more complex and offers more protection. The corporation is a separate legal entity that is created and must be recognized by the state. The corporation, unlike the sole proprietorship, gives the entrepreneur significant liability protection. The corporation itself can be sued, but the shareholder is protected. Usually small beginning entrepreneurs will create a “closely held” corporation in which all shares are owned by the entrepreneur and no stock is publicly sold. The price or this liability protection is that the corporation must pay a tax. A tax is paid on the earnings of the corporation and there is a second tax on the dividends paid to the shareholders. This is commonly referred to as the “double tax measure.” If the entrepreneur wants the benefit of liability protection, he may have to address double taxes if deciding upon a corporation, or assume all income is disposed of as salary.
- The General Partnership: This business structure is similar to the sole proprietorship, but consisting of multiple people or entities. No formal agreement is necessary, but is strongly recommended. The partnership agreement will control and describe the powers and limits of each partner. Just like the sole proprietorship, there is no personal liability protection. All partners are jointly and severally liable. This means that if the partnership acts negligently, one or all of the partners will be vulnerable to being sued. The partnership does not pay a tax. Each partner will be taxed on a personal level equal to the share that the partner owns unless the partnership agreement states otherwise. However, Texas does subject general partnerships to a franchise tax.
- The Limited Partnership: This business structure is a combination of both a general partnership and a corporation. There must be at least one general partner. The general partner will assume personal liability for the partnership, but is the only partner with most management and control of the partnership. The limited partners have no personal liability to the partnership, but are prohibited from participating in management of the partnership. The partners will be taxed on a personal level equal to the share that the partner owns as well as a franchise tax. A certificate of formation must be filed with the Secretary of State in Texas.
- The Limited Liability Partnership (LLP): This is similar to the limited partnership, but the limited partners may participate in management. At least one general partner must still be personally liable for the partnership. This is a common business structure for law firms and accounting firms. The LLP is still subject to the Texas franchise tax and the proper paperwork must be filled with the Secretary of State.
- Limited Liability Company (LLC): This business structure is another combination between a corporation and a partnership. This business structure is the most common for starting entrepreneurs because an individual may guard against personal liability as well as double taxation. The individuals that comprise the LLC pay taxes individually, similar to a partnership. All members of the LLC are allowed to participate in management and decision making. An operation agreement must be formed similar to a partnership agreement that structures how the LLC will be run. An entrepreneur must fill out the necessary paperwork and submit it to the Secretary of State in Texas to properly form an LLC. The LLC is also subject to a franchise tax in Texas.
All of these business structures have both vulnerabilities and merits. It is important to sit down with an experienced attorney and discuss your options before choosing a specific type of business formation. This is the most basic and important decision an original entrepreneur must address and he/she should be aided by a lawyer with experience in the matters and decision making.
Texas Home Owner Associations Given Limits by State Legislation
Texas legislation has limited the control that the home owners associations have when pursuing foreclosure. The restrictions that have been placed on home owners associations are aimed to help assist homeowners that are delinquent on their specific payments. The provisions enclosed within the legislation help the homeowners that are down on their luck in multiple ways.
1.) In order for a HOA to foreclose on a house they need a court order
2.) The foreclosure on a person’s home cannot commence until 60 days have lapsed after written notification
3.) The debt due can also be repaid by an alternate payment plan
The ability of the HOA to foreclose on an individual’s house is no longer absolute. New legislation provides for the HOA to lose its ability to foreclose on individual properties if 67% of the homeowners decide to rid this right of foreclosure from HOA power. All of these new stipulations have been ushered in to protect people from abuse by their own HOA. HOA is now more restricted in power and use of such power.
The HOA must maintain policies that require documentation of mortgages and outstanding payments. If the HOA has no policies instituted for document retention they cannot charge homeowners for the cost of retrieving the documentation individually. The HOA must allow for an annual meeting as well. If a demand for a meeting is not upheld by the HOA then a re-election of the board members can be initiated. The voting aspect of HOA has been revised as well. A homeowner may vote in proxy, by absentee ballot, or by an electronic ballet, however all ballets must be in writing and signed.
All of these rules have been implemented to help protect homeowners from HOA wrongful oppression. Foreclosures have been epidemic in Texas with HOA’s foreclosing on people’s properties without any or with inadequate warning for individuals to respond and protect themselves. These new laws help level the playing field and give homeowners’ safeguards against the wrongful whims or abuse of power of the HOA.
Your Trust Fiduciary/Trustee—-Friend or Foe??
With the financial conflicts facing individuals and families today and the aging of the general population, more trust beneficiaries and family members are becoming concerned with the fiduciary duties of the trustees of their individual trusts.
The fiduciary duty is a legal relationship, obligation and trust to act in the best interest of the beneficiary. The fiduciary or trustee, must employ undivided loyalty to the beneficiaries concerning all matters related to their trust and will be held accountable if he or she acts adverse or contrary to the interest of this relationship.
The duties of a Trustee Fiduciary include the following:
- The Trustee must be loyal to and administer the trust solely for the benefit of the beneficiaries. The trustee can never take advantage of his or her position for personal gain.
- The Trustee must deal impartially with all beneficiaries, if more than one exists. This can sometimes be difficult, since each beneficiary may have their own agenda and needs to be met.
- The Trustee must obtain possession of the trust assets immediately and keep these assets under his or her control through the entire term of the trust. The Trustee must also enforce claims and defend actions against the assets in the trust.
- The Trustee must keep the trust assets separate and segregated from his or her own personal assets and from assets or funds of any other trust instrument unless the trust itself provides otherwise.
- The Trustee must administer the trust personally and responsibly at all times and only delegate responsibilities that would be in the best interest of the trust, such as a tax advisor or accountant.
- The Trustee must keep the assets productive to pay income to the beneficiaries. The duty of the trustee is to keep trust property invested so it produces income.
- The Trustee must make full disclosures and furnish information to the beneficiaries about the administration and status of the trust. An annual report is standard with an accounting of income, expenses, gains, and losses. Upon request, the Trustee must provide for the beneficiary, complete and accurate information on the nature and amount of the trust property and permit the beneficiary to inspect the accounts and other documents related to the trust.
A Trustee must be honest, responsible, have a high degree of integrity, and a genuine interest in the welfare of the trust and the beneficiaries. It is also very important that the Fiduciary has experience in the investment of assets and management of property to keep the trust income producing.
There can never be a conflict of interest between a Trustee and the beneficiary. The law forbids a Trustee from acting in an adverse manner contrary to the interest of the beneficiary or from acting in his own benefit in relation to the trust.
The Nacol Law Firm PC
Law office of Attorney Mark Nacol
Serving clients in the Dallas – Fort Worth Metroplex area for over 30 years
Tel: 972-690-3333
Children Born Outside of Marriage: Unknown Descendants that May Inherit
Creating a Will is extremely important for individuals that have a sizable estate in the Dallas and DFW metroplex. Time and time again, individuals refuse to properly prepare for death and do not see the proper preparation of a legal and valid will as a necessity.
When you refuse to prepare a Will, then your entire estate will pass through the intestate process. Intestate rules apply if: (1) there is no will, (2) the will does not completely dispose of the entire estate, or (3) there is a pretermitted child/adopted child born after the will’s execution.
In certain situations, a child born outside of a marriage may still claim inheritance rights per the rules of Intestate succession. Nonmarital children may establish inheritance rights from the alleged father if the presumption of paternity is proven in court. Paternity is presumed if one of the following elements are met per Tex. Fam. Code § 160.204:
- The child was born during (or within 300 days after) the marriage of the man and the child’s mother;
- During the first two years of the child’s life, the man continuously resided in the same household as the child and represented to others that the child was his; or
- The parties married after the Child’s birth and the man voluntarily asserted his paternity of the child in one of the following ways:
a) The assertion of paternity is in a record filed with the Bureau of Vital Statistics;
b) The man was voluntarily named as the Child’s father on the birth certificate; or
c) The man promised in a record to support the child as his own.In many cases a child that was born out of wedlock may still inherit from the father’s estate if the above mentioned actions can be proved. Depending on the estate, this ability to prove the presumption of paternity can have a great impact on the allocation of the estate’s assets.
Paternity may be rebutted, even if the presumption is proved by a preponderance of evidence, by a DNA test. DNA testing is the only option to rebut the presumption of paternity. Depending on the estate and the desires of all parties involved, a Judge may order that the body be dug up for a DNA sample of the deceased. This is rare, but the Court does have the authority.
It is important to remember that the Statute of Limitations to establish inheritance rights or the presumption of paternity begins at the date in which the father died. The statute of limitations is four years, which means any potential claim must be brought within four years of the individual’s death.
If you are a nonmarital child or born out of wedlock in the DFW area, you may still inherit as a matter of law. A will created prior to the birth of a nonmarital child will not cut off the child from his or her rightful inheritance. For situations like this, please contact Nacol Law Firm to acquire an experienced attorney to navigate through intestacy laws and probate.
Julian Nacol
Dallas Probate Attorney
Nacol Law Firm P.C.
tel: (972) 690-3333
Contract Review: Proper Form to Prevent Future Breach
Before signing a contract, read through it carefully. Have an attorney review the contract. Make certain that you know what obligations are stated and/or implied. If you are uncertain as to your duties and you sign the contract, you may be liable for a future unintentional breach of the contract.
Contract negotiations, especially in the context of important financial contracts, can be taxing and difficult at best. An attorney can assist you with negotiations to ensure your needs and requirements are met. Additionally, your attorney can properly draft and/or review the contract, explain to you your rights and duties under the contract, and make suggestions as to provisions which may be necessary to protect your best interest.
The following is a good guideline for contract review. It is not an all-inclusive list, but may be used as a tool to assist with contract drafting and review:
- Make sure the language contained in the contract is clear and understandable. In most cases, limit the use of highly technical terms when possible. Unnecessary legal wording may make the contract confusing, thus use regular wording to make sure the parties understand what the contract says and means.
- Give a clear and concise description of the goods and/or services to be received.
- Give a clear description of the amount of money or other consideration for the contract.
- If any payments are payable outside the U.S., make sure the payments are in U.S. dollars.
- Make sure the contract contains a specific time and place for performance.
- The contract should contain a method of providing notice of default and opportunity to cure default.
- Rights, obligations, and duties of every party should be clearly listed. Each party’s responsibilities should be identified in understandable wording.
- Use clear and concise names when listing parties to the contract, including address, telephone number, fax number, and email addresses.
- Be sure you have a contact person for each party to the contract, including address, telephone number, fax number, and email addresses.
- Establish a date the contract is to begin and end.
- Make sure the contract contains all other important dates to the contract (milestones, deadlines, reports, etc.). Use full dates. Such dates should be clearly identified.
- The procedure for renewal of the contract should be clearly identified.
- If an employment contract, the procedure for termination of the contract should be clearly identified (termination for cause and/or termination at will).
- Indemnification, liquidated damages, attorney’s fees, waiver of contractor’s liability, waiver of statutes of limitation clauses should be incorporated if necessary or applicable.
- Establish the contract is governed by the laws of the State of Texas.
- Establish the venue for suit is in the county where the Company’s main office or parties signing are located or agree otherwise.
- If insurance is required, define the types and levels of coverage.
- Confidentiality provisions, if applicable, should be incorporated.
- Ensure Act of God or force majeure clauses are incorporated if necessary.
- Assignment by either party should be approved in advance in writing.
- Incorporate an Alternative Dispute Resolution clause, if required or desired.
- All appendices, exhibits, attachments, and schedules should be attached.
- Title and authority of person signing the contract should be properly stated and warranted.
- Spelling, formatting, grammar, punctuation and general appearance of the contract should be professional and accurate.
Preprinted form contracts should only be viewed as a starting point, not a final expression of the parties’ agreement. Protection for all parties is usually minimal to non-existent in such pre-printed forms. No pre-printed form can be expected to cover the particulars of all agreements between two or more specific parties. Having an attorney review and negotiate pre-printed forms may prove prudent and smart.
It is imperative that the terms of a contract are fairly negotiated, properly drafted, and reviewed to ensure the contract meets the intentions of the parties.
NACOL LAW FIRM P.C.
8144 Walnut Hill Lane
Suite 1190
Dallas, Texas 75231
972-690-3333
Office Hours
Monday – Thursday, 8am – 5pm
Friday, 8:30am – 5pm
PRACTICE AREAS
SEARCH
JOIN OUR NETWORK
Attorney Mark A. Nacol is board certified in Civil Trial Law by the Texas Board of Legal Specialization