You have decided to start a new business and realize that no matter what your business does, creates or builds, you of course have no desire to be exposed to personal liability if something does not go as planned. Unfortunately, there is no 100% guaranteed “iron clad” (not a legal term, but we hear it all the time) contract provision to prevent a lawsuit from being filed against your business. The days of “mom & pop” shops operated by our dear old neighbors on a handshake deal and sign on the door are well behind us. We live in a litigious world where all too often people rush to Court, rather than really trying to work things out.
So, while you cannot prevent a lawsuit from being filed against your business, it is wise to do your best to limit exposure to your personal wealth and assets. This means more than just a “registered name” or “DBA.” You need an actual business entity or structure that is separate from “you” as an individual.
The following are the typical business structures in Texas: Sole Proprietorship; General Partnership; Limited Partnership; Corporation and Limited Liability Company. A “Sole Proprietorship” is probably the most common and simplest form of business structure. A sole proprietorship is a business that an individual engages in a business activity without a formal business organization. Most often, sole proprietorships conduct business under an “assumed name” – some name other than your personal name. While not required, individuals who operate a sole proprietorship typically file an assumed name certificate that indicates he/she is “doing business as” aka a “DBA.” You can usually obtain a form online from the county website for the county where your business is located. You can also file assumed name certificates in any county where you do business and with the Texas Secretary of State.
However, while this filing gives notice that you are conducting a business under a particular name, it provides no protection from personal liability. If a lawsuit is filed, it will be against the person whose name precedes the DBA. This is because the DBA is merely a name. It is not a formal business entity under Texas law. Therefore, if you are looking to limit your personal exposure to potential liability, a sole proprietorship is not the best form of business structure.
In Part 2 we will discuss General Partnerships and Limited Partnerships.