Purpose and Structure of the LLC

June 10, 2016

Under Texas law, a limited liability company can operate for “any lawful purpose or purposes not expressly prohibited under chapter 2 of title 1 or title 3 of the Business Organizations Code.” Thus, as the business grows, the company is able to operate for multiple purposes, provide multiple lines of goods, offer a variety of services and more.
Many small business owners start with one idea and later, as the company becomes more established, decide to start a second line of goods or division of services under the same company. Often business owners obtain assumed names to create divisions within the company. While this is perfectly legal under the Texas Business Organizations Code, it may not be ideal in every situation. Separating out the different facets of your company into separate entities could provide better protection in the long run.

Liability Exposure
Compare the type of goods or services you are currently providing within the company with the type you are thinking of offering. Are there significant risks associated with one over the other? A disparity in risk between the two suggests forming new or subsidiary LLCs.

Investor Potential
Do you plan on bringing investors into your business venture? If you are seeking to offer investors equity in a particular line in your company, you will need separate entities. Using a D/B/A to create the illusion of different companies or divisions complete with a distinct set of assets does not allow you to limit an investor’s reach into company distributions.

Disproportion of Assets
Does one division of your company hold significantly greater assets than the other? Weigh the value of assets against the exposure to liability to determine if separate entities are needed to protect the assets of one line of goods and services of the company from judgments arising out of lawsuits against the other.

Before you begin operations, you should speak with an experienced Texas business attorney who can discuss with you your business plan, goals for the company, goods and/or services being offered, potential for investors and more to determine the best structure for your LLC.

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