If you’re like most new business owners, you're probably looking for a business structure that’s simple to form without sacrificing potential benefits. A limited liability company (LLC) is the easiest formal business structure to form and maintain. Forming an LLC in Texas provides your startup with tax advantages, personal asset protection, and more. Keep reading to learn more about the benefits of forming an LLC in Texas.
Benefits of an LLC in Texas
1. Simple to Form and Maintain
If you’re looking for a business structure that isn’t a headache to start or maintain, a Texas LLC is a great choice. Compared to other formal business structures, such as corporations, LLCs require far less paperwork, requiring you only to file the Certificate of Formation (also known as the Articles of Organization in other states). Additionally, while it’s not required in Texas, we recommend drafting an Operating Agreement as well.
To maintain an LLC in Texas, you need to file an annual report — it’s that easy! Not to mention, you avoid the complexities of operating a corporation, such as holding shareholder meetings, leaving you to focus on the day-to-day operations of your startup.
2. Personal Liability Protection
In the event that your Texas LLC is sued or accrues a debt, personal asset protection ensures that your personal assets aren’t vulnerable should either event happen. This is what is known as a corporate veil, which is essentially a legal barrier that separates your assets from your business. Unlike informal business structures, such as sole proprietorships where the business owner is financially responsible, with an LLC, your personal finances are distinct from your business finances.
3. Tax Benefits
Unlike C Corporations that are taxed twice, an LLC in Texas allows you to avoid double taxation. This means that an LLC’s profits are taxed on the member(s) personal tax returns, which means all profits are only taxed once at each member's income tax rate — also referred to as pass-through taxation. By bypassing double taxation, tax preparation and filing is streamlined and simplified.
4. Flexible Ownership and Management
How you choose to manage your Texas LLC is determined by whether you prefer a hands-on approach to business ownership. Fortunately, forming an LLC gives you plenty of flexibility to choose how your startup is managed.
There are two types of management for LLCs: member-managed and manager-managed. Business owners that prefer to be active in the daily operations of their LLC tend to choose a member-managed model while owners that would rather avoid the daily duties of operating the business to someone they trust typically opt for a manager-managed model.
5. Increased Credibility
Having a formal business structure, rather than a sole proprietorship or general partnership, increases your credibility with customers in a number of ways. First and foremost, the inclusion of “LLC” at the end of your business name indicates that your business is credible and informs a sense of permanence. Additionally, unlike sole proprietorships that are only registered at a city or county level, an LLC is registered with the state of Texas which is a major selling point for many customers looking for credible, trustworthy businesses.
6. Support From the Texas Secretary of State
While it may sound appealing to not register your business by opting to form a sole proprietorship, you sacrifice the benefits of support from your government. For LLCs in Texas, this includes support from the Texas Secretary of State (SOS). The Texas SOS website is full of business resources and services developed to support the wellbeing and growth of small businesses and startups.
From business registration assistance, to valuable guides and resources, as an established Texas LLC you will have access to all of the helpful information the Texas SOS has to offer.
7. Lower Registration Fees Than a Limited Partnership
Forming an LLC in Texas can also save you money during the registration process compared to other business structures such as Limited Partnerships. The fee to register a limited partnership in Texas is $200 for each partner (up to a maximum of $750). Limited partnerships in Texas must renew their registration annually. In contrast, to register an LLC in Texas, you can expect to pay a single filing fee of $300 to the Secretary of State.
How to Form an LLC in Texas
You can start an LLC in Texas on your own by following our simple, step-by-step guide:
- Name Your LLC in Texas
- Choose a Registered Agent
- File Texas LLC Formation Documents
- Create a Texas LLC Operating Agreement
- Get an EIN
You can also have a professional service form an LLC in Texas for you. Read our review of the best LLC formation services.
What is an LLC?
A limited liability company (LLC) is a formal legal business structure. Compared to corporations, LLCs are both the easiest business structure to form as well as maintain without sacrificing tax benefits, management flexibility, and personal asset protection.
What are the advantages and disadvantages of an LLC in Texas?
Unlike informal business structures such as sole proprietorships or partnerships, structuring your business as an LLC in Texas grants your business certain tax benefits as well as personal liability protection — meaning you won’t be personally liable for your business’s debts or in the event that your business is sued.
Alternatively, startups that expect rapid growth and plan to take on investors, such as venture capitalists and angel investors, may not benefit from forming an LLC and may choose instead to start a corporation.
How much does it cost to form a Texas LLC?
To register an LLC in Texas, you can expect to pay a single filing fee of $300 to the Secretary of State.
How long does it take to start an LLC in Texas?
If you file your formation documents online, you can expect processing to take between 3-4 business days to form an LLC in Texas. If you file by mail, you can expect to wait between 7-10 business days for processing.
How do I change from a sole proprietor to a Texas LLC?
You can change from a sole proprietor to an LLC in five easy steps:
- Name your LLC.
- Choose a registered agent.
- File LLC Articles of Organization.
- Create an LLC operating agreement.
- Get an EIN.