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 Deceptive Trade Practices Act : Pre-Purchase Protection When Buying a Home in Texas
Purchasing a home can be a daunting yet exhilarating experience depending on the circumstances. Sometimes after a couple has purchased a home they regretfully discover many construction defects that were not disclosed to them by the Seller. Many undisclosed material defects within a home not detected by the buyer’s independent inspector that were misrepresented by the Seller may cause severe hardships in the future.
Legal relief requires an experienced real estate lawyer. A fraudulent misrepresentation made by a Seller when selling a home may give rise to a claim under the Deceptive Trade Practices Act of Texas. Multiple provisions relating to the misrepresentation of property per Tex. Bus. & Comm. Code §§ 17.46(b) are designed to protect a buyer. These misrepresentations if properly proven by the evidence will give rise to certain damages available to Buyers under the Texas DTPA Statute.
If you are the victim of fraudulent misrepresentations your independent inspector did not discover during the house inspection, you may still have relief. If circumstances prove that a misrepresentation was intently made or defect was concealed by the Seller, then under the DTPA you may be eligible to receive Economic Damages. Economic Damages include compensation for any pecuniary loss, including repair or replacement of defect. If the buyer of the home is victorious at trial, attorney’s fees and additional damages may be awarded as well.
If it can be proven that a Seller “knowingly” misrepresented a portion of the home to a buyer such as hiding evidence of termites, hiding foundation defect or old repairs, or electrical problems, then the buyer may be entitled to 3 times the amount of actual economic damages of the suit including attorney’s fees. The DTPA is a consumer based protection statute that ensures normal people are not taken advantage of due to their lack of knowledge.
If you are a buyer that has intentionally been taken advantage of by a Seller through fraud or deceit you should find an experienced attorney. DTPA actions are complex and time sensitive. An experienced attorney will give you the highest probability of success.
The Texas housing market is exploding and there are many out of state individuals moving into the Dallas / Fort Worth area. If you are a native Texan or a family transferring into the Dallas / Fort Worth area and feel you have been fraudulently deceived by a Seller, please call an experienced attorney with a firm hand to obtain the justice you deserve under the DTPA and other Consumer Protection Laws.
Julian Nacol, Attorney
Nacol Law Firm P.C.
Consolidation of Cases
Suppose, for example, that you have decided to bring a suit against your employer for workplace harassment that occurred in the Fall of 2022. Suppose also that one of your co-employees also brings a suit against that employer for workplace harassment due to the same or similar actions on the part of the employer that also occurred in the Fall of 2022. Pursuant to Tex. R. Civ. P. 174(a):
When actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated; and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.
Consolidation is appropriate if one trial or hearing would serve the same purpose as two, provided no party is prejudiced. A court will consolidate two cases if the result is fewer trials, reduction of time consuming examination of evidence, and reduction of costs. Essentially, a court will consolidate to promote judicial efficiency. [H. Rouw Co. v. Tex. & N.O.R. Co., 260 S.W.2d 69, 69–70 (Tex. Civ. App.—San Antonio 1953, no writ); see Frumer, Multiple Parties and Claims in Texas, 6 Sw. L.J. 135, 138 (1952)].
If several independent actions that could have been joined as one action originally (see Tex. R. Civ. P. 40(a), 51) are pending in the same court, a court may order the actions consolidated into one action. Tex. R. Civ. P. 174(a). A court also has the discretion to transfer a case to another court in order for those cases to be consolidated.
Considering the above scenario where you and one of your co-workers brought nearly identical separate actions against your employer, the chief consideration of a court in deciding whether the two cases should be consolidated is whether the two cases derive from a “common question of law or fact.” In this simplified scenario, it is highly likely that a court would consolidate the two cases because they have same questions of law (i.e., the same causes of action and legal theories) and of fact (i.e., the same factual scenario of being discriminated against within the same time period). While there could be an argument made that your suit contains different facts and scenarios because you are a completely different party from that of your co-worker, such an argument may be futile because courts have an abundance of discretion on this issue and are chiefly concerned with judicial economy. A court would likely see two harassment cases arising out of similar actions of the employer that occurred around the same time period and conclude that the cases likely have a common question of law or fact, almost certainly could have been joined as one action originally, and would be more efficiently tried as one case.
As you can imagine, more complex, nuanced questions of consolidation can arise. Say, for example, you are sued for breach of contract by an individual and separately for fraud by an LLC owned by that same individual. Suppose, while those claims are different, they are still related to the same set of factual circumstances. May a court still consolidate these cases together? Perhaps. The court has broad discretion when determining whether to consolidate. At the end of the day, “the underlying test remains whether the two actions have a logical connection in the sense that it would be more convenient and efficient for the two actions to be tried together.” 7 Dorsaneo, Texas Litigation Guide § 112.02 (2024).
Nacol Law Firm P.C.
Dallas Civil Litigation Lawyers
Call (972) 690-3333
Disclaimer: The information provided in this article is in no way intended to constitute legal advice. The information provided is merely an overview of the relevant law. Do not act on this information. Always consult an attorney for legal advice.
Mediation : Alternative Dispute Resolution
“Mediation” is a process to aid parties in finding a fair and equitable settlement of disputes without unnecessary court intervention. Most Texas district and county courts require pretrial mediation for a variety of cases in order to help the parties resolve their problems while avoiding extensive court procedures and expenses
Mediation is a process in which the parties, under the guidance of a Mediator, agree upon a legally binding settlement the disputes in issue without a trial. Meditation can take many forms and the process may produce creative solutions without the direct rulings of the court. Courts usually encourage the opposing lawyers to first mediate a dispute and if no progress is made then continue the normal judicial process.
The Mediator that helps bring both sides to an agreement usually is a lawyer, ex-judge, or other specialist who has experience or expert training in the specific areas related to the dispute. A Mediator fees may range anywhere from $160-$500 dollars an hour depending on the case and the complexity of the issues in dispute. Mediators attempt to work with each side to find a reasonable middle ground to which a fair agreement can be structured.
An experienced lawyer is a valuable tool to advance favorable terms of any agreement during a mediation. During a mediation a Mediator will likely place the parties into separate “Caucus” areas, splitting the parties into different rooms to negotiate individually with each party to understand the positions and interests. Once the Mediator has talked to each party he will attempt to discover a common grounds that will fairly or smoothly serve both parties’ interests. If an agreement is reached that neither side is overly happy about, it is often likely that a reasonable compromise has been reached.
The important point of a mediation is to express your concerns and attempt to reach a compromise that is mutually acceptable, smart and fair to both sides. Many courts support this type of dispute resolution because it frees up the courts dockets and allow the parties to consider compromise first without involving the courts. Mediation maybe a cost saver, as the dollars you spend on an attorney for trial can be reduced significantly if a compromise is reached.
Make sure you have an attorney who is experienced in the Mediation process and knows how to craft a smart, fair deal which will result in significant cost savings.
A Director’s Fiduciary Duty to His Corporation
A Director of a Corporation has specific fiduciary duties that precludes activities that might endanger the Corporation. The certificate of formation may limit or eliminate personal liability of Directors in certain respects such as money damages but there are some concrete fiduciary duties that cannot be dispensed with such as:
- Breach the duty of loyalty;
- An act or omission not in good faith that constitutes a breach of a duty or involves intentional misconduct or a knowing violation of law;
- A transaction in which the director received an improper benefit; or
- An act or omission for which liability of a director is expressly provided by Texas Statute.
Of all the mandatory fiduciary duties listed above, the duty of loyalty is the most sacred. The policy in Texas is that a Director’s loyalty is to the Corporation first and to himself second. A Director is generally precluded from entering into any transaction that may personally benefit him. A Director has a personal interest in a transaction if he is a party to the transaction, has a material financial stake in the transaction, or is an immediate family member to the transaction.
A Director may enter into a transaction with the corporation that personally benefits him with these three exceptions:
- The material facts of the relationship governing the transaction are known to the board of directors, and the board in good faith authorizes the transaction by a vote of a majority of the disinterested directors;
- The material facts of the relationship governing the transaction are disclosed to the shareholders who then by vote approve the transaction in good faith; or
- The transaction is fair to the Corporation at the time it is authorized or ratified by the board of directors or shareholders.
If one of these three exceptions apply to a Director that stands to personally benefit from a transaction with the Corporation, then his fiduciary duty of loyalty will likely not be breached. The duty of loyalty is the most important fiduciary duty because many Corporations have Directors which serve concurrently as Directors for other independent Corporations. It is common to have a Director for a Corporation that is also a Director for another Corporation. With one individual sitting as a Director on multiple Corporations it is important that his duty of loyalty remains consistent with each Corporation that he represents.
Julian Nacol, Attorney The Nacol Law Firm P.C. (972) 690-3333
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
OUR BLOGS
SEARCH
JOIN OUR NETWORK
Attorney Mark A. Nacol is board certified in Civil Trial Law by the Texas Board of Legal Specialization
