Most businesses start as sole proprietorships and then upgrade with time. Now, every state has laws and regulations regarding how businesses ought to be managed and formed. These are often things that you can’t change and as such, before you choose to establish a business anywhere, check whether the state’s laws are favorable.
Here are some perks of forming an LLC in Texas
Nonetheless, limited liability companies (LLCs) are perhaps one of the best business structures to form if you’re a small business. It has a lot of benefits, and especially in the State of Texas, there are a few perks it comes with. That said, here are some perks of forming a Texas LLC.
1. Limited Liability Protection
It is perhaps the biggest perk LLC has with those entities like sole proprietorships and partnerships don’t. Limited liability protection protects you from being liable to pay for a debt attributed to the LLC. So, it means that if the LLC suffers a loss, the owner’s assets can’t be used to pay off the liability or debt that’s at hand. It includes the owner’s house, car, or even a bank account. They are only allowed to claim from whatever is left in the LLC. This protection is what is known as a corporate veil.
In business, the risk of failure or loss is always present. So, if you want to protect your assets, you need to have limited liability protection. Therefore, an LLC is a good entry point for those people with small businesses. If you have sole proprietorship, consider upgrading to an LLC.
2. Name Registration
By registering an LLC in Texas, you get to choose a unique name for your company, just like a corporation would. This name will be unique to you, and no other person or entity will be allowed to get that name as long as your business is active. But, with sole proprietorship, the option isn’t there because you’re required to operate your business with your name.
3. Pass-Through Taxation
In Texas, C corporations are subject to double taxation under Texas law. It simply means that they charge taxes on company profits before they are distributed to shareholders, but LLCs aren’t taxed in that manner. They are taxed more like a sole proprietor. The business’ net income passes onto the owner’s tax return. That’s why it’s called pass-through taxation. The members’ tax returns are the ones that are subject to tax at each member’s tax rate (based on their tax bracket).
LLCs are more credible than a sole proprietorship or general partnership. The term LLC formalizes your business. Believe it or not, credibility matters, and people pay attention to this.
People are more inclined to trust a business that is registered as opposed to one that isn’t. Plus, in Texas, while sole proprietors register their businesses on a city or county level, LLCs register with the State of Texas, which is a big selling point.
LLCs are relatively easy to create compared to corporations. The reason is that the registration process rarely requires a lot of paperwork. Even after completing it, there are a few requirements about formalities that an LLC is supposed to follow.
Under Texas law, LLCs are not obliged or expected to hold a specific number of board meetings, unlike corporations. So, you can choose to have or arrange for those meetings, but it’s not codified in law that you should have such meetings, which is a significant perk.
6. Ownership Flexibility
Now, with an LLC, there are no hard, strict, or fast rules regarding how you ought to structure the ownership of your company. LLCs give the owners much flexibility regarding how they want to define and the ownership of the company.
It can be a single-member LLC or multi-member LLC. With multi-member LLCs, you can appoint a manager to manage the LLC. But also, the members can manage the entity on their own. So, if you want more flexibility in structuring your company, LLCs are the way to go. Corporations don’t have as much flexibility in that regard. There’s also no limit how many members can form an LLC, unlike with corporations.
7. Low Registration Costs
The great thing about establishing an LLC in Texas is that it has lower registration costs compared to a limited liability partnership (LLP), for example. Limited partnerships register each partner by charging them a certain fee, and they are required to renew the registration annually. But, there’s no renewal fee for LLCs in Texas state.
Now, it’s important to note that in Texas, LLCs have significant benefits that will appeal to a lot of startups and small businesses. So, if you’re looking to take advantage of these benefits listed above, consider forming an LLC in the State of Texas.