HOUSTON BUSINESS REVIEW

CYA: COVER YOUR ASSETS! Part 4
By Shahara Wright

Shahara D. Wright, Business Law Attorney, "Serving businesses from start-up through expansion". You can cantact her by: calling her at (281) 980-2040, sending her an e-mail or visiting her website. For more information concerning Shahara Wright click here

. The most common and well known business entity is the corporation. Usually most entrepreneurs choose this entity because this is all they know. While it is not a bad choice making this choice comes with much responsibility. Incorporating your business requires a filing with the Texas Secretary of State. Articles of Incorporation, Bylaws, Employer Identification Number, and meeting Minutes are all mandatory documents. A corporation usually has what I would like to call a “three tiered management system.” Shareholders are the owners of the corporation and elect the Board of Directors; the Board of Directors oversee the overall direction of the company and elect the officers; the Officers run the day to day operations of the business.

In a traditional corporation, the shareholders do not run the business but only receive income from it. Shareholders are shielded from the liability of the corporation. A Corporation has its own legal identity, separate from its owners. It exists separate and apart from the people, who own, manage, control and operate it. The Corporation issues stock of its own as evidence of ownership. The persons who own the stock are the owners of the Corporation, and are entitled to any dividends the Corporation may pay and to receive all the Corporation’s asses after all creditors have been paid if the Corporation is liquidated.

Board of Directors and Officers generally manage the Corporation. The shareholders, Board of Directors, and Officers must hold annual meetings and keep records of each. This can become relatively expensive if there are a large number of shareholders who do not live in the same area. The Bylaws govern the rules and regulations of a particular corporation. Board of Directors makes decisions, officers carry them out.

Another popular choice is a Limited Liability Company (LLC). A LLC is an unincorporated business entity that shares some aspects of the "s" corporation. The LLC provides its members with limited liability and pass-through tax advantages without the restrictions imposed on "s" corporations and limited partnerships. The LLC is owned by member and may elect managers to run the company. The management and operation of the LLC is governed by its regulations, which are similar to corporate bylaws. Members of an LLC are agents of the LLC to the extent the articles reserve management in the members. If management is vested in managers, then they are the agents of the LLC to the extent the articles vest management in them. An agent of the LLC has power to bind the LLC by an action apparently for carrying on in the usual way the business of the LLC.

Members of an LLC are not liable for the debts of the LLC except with respect to make the contributions to the LLC that they agree to make and with respect to the distributions received by the members when they knew the distribution caused the LLC's liabilities to exceed the fair market value of its assets.

Nothing in this article is intended as legal advice and you should consult an attorney before making any decisions.