When it comes to choosing a type of business entity for operations in Texas, the question often comes down to a corporation or a limited liability company. The choice between the two forms depends on the type of business being created, potential tax consequences and the preferences of ownership. Both LLCs and corporations offer the advantage of liability protection, meaning that those who own the company are generally not held personally liable for company debts.
One of the major advantages of an LLC is simplicity. LLCs are generally simpler to set up and to operate than corporations. Most states require that articles of organization are filed, usually with the secretary of state; it may be possible to make the necessary filings online. Typically, an operating agreement is used to define the responsibilities and roles of the members of the LLC. Operating agreements are not strictly necessary, but they are a good idea to help things run smoothly.
The primary advantage of the corporate form is that profits do not necessarily flow through to the owners, allowing for tax advantages in the business. This varies based on whether an S-corporation or a C-corporation is used. S-corporations are closer to LLCs because their income generally passes through to ownership. C-corporations are more common than S-corporations and are taxed at the corporate level, independent of taxes their owners pay.
Business owners and entrepreneurs in Texas might want to meet with a lawyer when it comes time to select and establish a business entity. A lawyer with experience in business formation may be able to help by examining the facts of the situation and helping the client to choose an LLC, corporation, partnership or other structure. A lawyer might also review important contracts, draft agreements, negotiate on the client’s behalf or create and file the necessary legal documents for the business entity.