Texas LLC or Corporation
Texas is one of the top destinations for startups and entrepreneurs but the most popular business structures are that of a limited liability company and corporation. The overall cost to form Texas Corporation is also low as compared to some of the other states. Depending on the specific needs or requirement, entrepreneurs can opt for several other forms of business like sole proprietorship, general partnership, limited partnership, and limited liability partnership. The formation and related aspects of a new business are governed by the Texas Business Organizations Code (BOC). The annual maintenance cost of Texas Corporation is different from that of Limited Liability Company or any other forms of business.
Which business entity should I choose for Texas business?
As a new business owner, one of the most important aspects is identifying the legal structure for your company. The structure of an entity has a significant impact on several key areas like the cost to form Texas LLC, taxation, legal liability, and ownership control of the entity. The following factors will help you to make an informed choice when it comes to choosing a specific form of business entity.
- Limited Liability Protection: The term limited liability refers to a type of legal structure where the private assets of owners and investors will not be at risk if the business fails to perform. It is considered as one of the biggest advantages and can help reduce the Texas LLC cost per year. In fact, different forms of businesses like a limited liability company (LLC), limited liability partnership (LLP), and even corporations offer this advantage.
- Pass-through entities: A pass through entity is a type of business where there is no double taxation. This simply means that the taxes of an entity will actually get “passed through” to the owner of the entity and hence tax returns will be filed by the owner instead of the business. This ensures the overall cost to form Texas LLC is less than that of a corporation. The businesses that are considered as pass-through entities include sole proprietorship, limited liability companies, and S corporations.
Startup Cost: The new business registration or incorporation fee plays a key role in determining the cost to form a Texas Corporation or LLC. A cost of forming a new business is governed by several factors including:
- Name reservation & renewal
- Annual reports
- Correction and amendments
- Assumed name certificates
- Rent or lease of commercial space
If you consider an LLC vs Corporation in Texas then the startup costs are almost similar for both forms of business although the registration fee for a professional association or limited partnership is higher than that of an LLC or corporation.
Pros and Cons of forming an LLC or Corporation in Texas
The most adopted business structure in the state is that of a limited liability company and a corporation. The overall cost to form a Texas Corporation or an LLC is low as compared to other forms of entities. Of course, there are pros and cons of forming a Texas LLC or a corporation.
A Texas limited liability has several advantages and disadvantages. Here are some of the pros and cons that will help you make an informed choice.
Pros of LLC
- A limited liability company will enjoy the flexibility of being taxed as a partnership, sole proprietor, C corporation, or S corporation
- The Texas LLC cost per year is less as compared to some of the other forms of business entities
- There is less paperwork involved for new business formation
- You can form a single-member LLC (with one person) or multiple-member LLC (several people)
- You can take advantage of flow-through taxation
- Members of a Texas LLC will enjoy limited liability protection against debts or legal issues
Cons of LLC
- Once you become a member of an LLC, you will not be able to pay wages to yourself
- One of the important costs to form a Texas LLC is the franchise tax
- An LLC vs Corporation in Texas reveals that investors would prefer a corporation over an LLC
- In a multi-member LLC, the ownership will be spread across all members
A Texas corporation is one of the most opted for structures but has its own advantages and disadvantages as mentioned below.
Pros of a Corporation
- One of the salient aspects of a corporation is limited liability. Since a corporation is seen as an entity separate from its owners and hence provides protection to them
- If you consider LLC vs Corporation in Texas then a corporation has the upper hand as it attracts investors
- A C Corporation provides employees with stock options and hence a more lucrative work place as compared to other forms of business
- The cost to form a Texas Corporation is lower than some of the other entities in the state
- Corporations enjoy continuity and can exist forever even if the company founder leaves or dies
Cons of a Corporation
- The process to incorporate in Texas is expensive and time consuming involving a lot of paperwork.
- There is a possibility of double taxation where the profit of corporation as well as dividends paid to stockholders may be taxed
- As compared to an LLC, a corporation follows a much more rigid structure and less flexibility
- Owners of corporations are not paid a salary; instead they receive dividends, which are subsequently taxed
Do you want to start a Texas LLC or a corporation?