Experience the unique advantages of a Texas LLC, from favorable tax policies to flexible management structures, making it an ideal choice for entrepreneurs and business owners. Discover more about how a Texas LLC can provide the perfect foundation for your business success.
If you’re considering starting a business in the Lone Star State, then odds are you’re weighing the benefits of an LLC in Texas. You might be wondering if it’s the right business structure for you, or if Texas is a good place to start an LLC.
For many Texas entrepreneurs, an LLC is a great fit. No income taxes and minimal annual fees make the state an attractive business prospect. But it’s not right for everyone. In this guide, we’ll discuss the benefits of a Texas LLC.
There are quite a few benefits to forming a Texas LLC. Whether you’re seeking a lower tax burden, access to business capital, or personal asset protection, a limited liability company might be a good fit for your needs. Let’s discuss some of the top benefits of a Texas LLC.
Texas is home to over three million small businesses, and it’s no surprise why; the Lone Star State is a favorable environment for start-ups. Texas is just one of a few states that don’t charge a personal income tax or corporate income tax.
There’s a franchise tax, but it’s pretty manageable, especially for smaller businesses. That’s because only LLCs above the “No Tax Due Threshold” pay the franchise tax, meaning that if your LLC’s annualized total revenue for the tax year is less than $1,230,000 (as of 2022), you don’t need to pay it.
However, the state does want you to tell them that you don’t owe anything for this tax by filing a No Tax Due Report (Form 05-163) and a Public Information Report (Form 05-102) every year (due May 15).
These low LLC costs allow a lot of entrepreneurs a little more financial freedom — and when you’re just starting out, a little can go a long way.
We’ve already briefly mentioned the low-tax nature of Texas, but there are other tax benefits to an LLC. By default, an LLC is subject to pass-through taxation for federal tax purposes. That means the LLC itself doesn’t pay taxes. The taxes “pass through” to the members, who report their distributive share of the LLC profits on their personal income tax returns. Often, this allows an LLC to avoid the double taxation of a corporation, in which profits are taxed at both the business and individual owner levels.
We highly recommend chatting with a business attorney or accountant to discuss your business taxes. No two businesses are the same, and their potential advantages for taxes vary.
One of the key benefits of an LLC is personal asset protection. In an unregistered business like a sole proprietorship or partnership, the business entity and its owner(s) are legally indistinguishable. But an LLC is a separate legal entity from its owners; it has a corporate veil that protects the assets of the members. In a dispute, creditors can usually only seize the assets of the business — not the owners.
This personal asset protection is especially important in Texas, which is known for being a state with a heavy litigation presence. For example, in 2019, Jefferson County ranked as one of the worst environments for legal proceedings nationwide, including business cases. Thankfully, operating as a compliant LLC protects your personal assets from most of these lawsuits.
In the end, limited liability protection is one of the primary reasons entrepreneurs decide they need an LLC.
Texas LLCs can be owned and managed in several different ways. For starters, LLCs can be flexibly owned; Texas allows both single-member LLCs (with just one owner) or multi-member LLCs (two or more owners). But Texas also allows you to pick the management structure that works best for you.
By default, an LLC is considered to be a “member-managed LLC,” or managed by the people who own it. This approach works well for entrepreneurs who want to run the business on their own. But LLCs can also be manager-managed instead. This second structure works especially well for LLCs with members who want to invest in the business without actively running it. Texas lets you pick the format that best fits your needs.
And whichever structure you pick, you should detail it in your LLC’s operating agreement.
Compared to other entity types like a corporation, a Texas LLC is very easy to run. Texas state law doesn’t require annual meetings, keeping a minute book, or even fulfilling any reporting requirements outside of filing taxes.
As long as you file your taxes, maintain a Texas registered agent with a physical address, and adhere to any business license requirements, you’ll probably be set. Granted, every business entity is different, but those are the basic requirements for LLCs.
Texas small business owners have access to a wealth of resources to help them get up and running. The Texas Workforce Commission offers a Skills for Small Business grant, which partners with local technical colleges to help train and upskill your full-time employees. The Product Development and Small Business Incubator program offers long-term financing to businesses developing new products. A good number of Community Development Financial Institutions focus on assisting younger, disadvantaged businesses.
And those are just a few examples. With the right funding, training, and capital assistance, your LLC can move from “just starting out” to thriving in Texas.
Starting a Texas LLC is an exciting prospect, and we’re here to help. At ZenBusiness, we make it easy to form your LLC, get a registered agent, draft an operating agreement, and so much more. Let us handle the red tape so you can stay compliant and focus on what matters: helping your business thrive.
One of the biggest disadvantages to forming a Texas LLC is the $300 filing fee. When you’re first starting a business, money is often tight, and a $300registration fee can feel like a lot. It’s the same price as forming a corporation, too.
On the plus side, Texas’s tax advantages and low maintenance costs help balance out these expenses over the long term.
Every state has pros and cons to starting an LLC, but Texas is especially favorable. That’s because there are no income taxes and annual maintenance is affordable.
As long as you run a compliant, legal LLC, your business’s corporate veil should protect you from losing your personal assets. Creditors generally won’t be able to seize your car, home, or personal bank accounts; they can only seize the LLC’s assets if things go south.
However, if you run your LLC illegally, commit fraud, or mingle your personal and business funds, your personal liability protection may be compromised. A court would treat you like a sole proprietor or general partnership.
Texas doesn’t require an annual report for LLCs to update their basic information with the Secretary of State (a common requirement in most states). However, when each LLC pays its franchise taxes, it will submit an annual franchise tax report to the Comptroller of Texas. Even if your LLC doesn’t owe anything in franchise taxes (and most won’t), you’ll still be responsible for filing a No Tax Due Report (Form 05-163) and a Public Information Report (Form 05-102) every year (due May 15).
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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