I. GENERAL.

A. Introduction.

In selecting a form of business entity in Texas the organizer or initial owners can consider the following five business entity forms:

• Corporation

• General Partnership

• Limited Partnership

• Limited Liability Partnership (“LLP”)

• Limited Liability Company (“LLC”)

The 83rd Texas Legislature, 2013 Regular Session (the “2013 Legislative Session”), which convened on January 11, 2013 and adjourned on May 27, 2013, did not change the forms of business entity from which to choose, but did enhance their flexibility and the desirability of Texas as a place to organize a business. The form of business entity most advantageous in a particular situation still depends on the business objectives for which the entity is being organized. In most situations, the choice of entity focus continues to be on how the entity and its owners will be taxed and the extent to which the entity will shield the owners and managers of the business from liabilities arising out of its activities. An increasingly important factor in choosing the form of entity, and its state of domicile, is the extent to which the personal liability of the entity’s governing persons may be limited in the entity’s governing documents.

Until the 1990s, the spectrum of business entity forms available in Texas was not as broad as it is today. In 1991, the Texas Legislature passed the world’s first LLP statute permitting a general partnership to significantly limit the individual liability of its partners for certain acts of other partners by the partnership making a specified filing with the Secretary of State of Texas (the “Secretary of State”) and complying with certain other statutory requirements. The Texas LLP statute was later amended to extend its LLP shield to contracts. Also in 1991, Texas became the fourth state to adopt a statute providing for the creation of an LLC, which limits the personal liability of LLC interest owners for LLC obligations at least as much as the liability of corporate shareholders is limited for corporate obligations. Today, all fifty states and the District of Columbia have adopted LLP and LLC statutes...