Benefits of Forming an LLC in Texas

Limited Liability Protection

When a business owner has limited liability protection, they can't be held personally responsible if the business suffers a loss. This means personal assets (car, house, and bank account) are protected.

In order to have limited liablity protection, the LLC must maintain itscorporate veil.

Other business structure types, likesole proprietorshipsandpartnerships, don't offer limited liability protection.

Corporationsoffer limited liability but are difficult to maintain and often offer unfavorable taxation for a small business.

Pass-Through Taxation

LLCs, by default, are subject topass-through taxation, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return. The net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

独资企业和partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

In a Texas corporation, profits are subject to "double taxation". This means profits are taxed before being distributed to owners and taxed again when owners report their share of profits on their individual tax returns.

Tax Options

Once a small business grows and can pay owners a reasonable salary and at least $10,000 in distributions each year, they might benefit from another LLC tax option, theS corporation(S corp) tax status.

When an LLC electsS corp tax, it reduces self-employment taxes and overall tax burden under the right circumstances.

For questions about tax solutions for your small business, we recommendusing an accounting service.

A limited liability company can choose among three different ways of paying income tax. One popular option is to be taxed as anS corporation. Technically an S corp is a tax designation, not its own type of business entity.

You can learn more about choosing the S corporation tax designation in ourLLC vs S Corpguide.

Simplicity

Limited liability companies in Texas are relatively easy to form and maintain with little paperwork or expense. Unlike corporations, LLCs aren’t required to assign formal officer roles, hold annual meetings, create bylaws, or record company minutes and resolutions.

Increased Credibility

Forming your Texas business as a limited liability company brings added credibility. An LLC is recognized as a more formal business structure than asole proprietorshiporpartnership.

Including LLC in your business name lets customers and partners know that you are a credible business.

Name Registration

When you form an LLC in Texas, you’ll choose a unique name that will be registered when the LLC is formed. By registering your name, no other businesses in your state will be able to use the name while your business is active.

A sole proprietorship or partnership must use the names of the owner(s) as the business name. A sole proprietor or partnership would need to register a doing business as name (DBA) in order to use something besides their personal name.

Ownership Flexibility

There are very few restrictions on how you can structure the ownership and management of a Texas LLC:

• Your LLC can besingle-memberormulti-member
• A Multi-Member LLC can be managed by its members, termed as member-managed
• A Multi-Member LLC can be managed by a manager that is appointed by its members, termed as manager-managed

Learn more about LLC management in ourmember-managed vs manager-managedLLC guide.

Five Basic Steps to Start an LLC in Texas

Step 1: Name Your LLC

You'll need to give your business a unique name that is distinguishable from all registered names in Texas when you file yourCertificate of Formation.

OurBusiness Name Generatorand ourHow to Name a Businessguide are free tools available to entrepreneurs that need help naming their business.

Recommended:Check to see if your business name is available as a网络域. You may want to buy the URL to prevent others from using it.