By The Wyoming LLC Attorney Team
Jun 03, 2022Limited liability companies are business structures where the owners are protected from the company's debts and liabilities, offering asset protection. LLCs are essentially companies made with the components of both a partnership or sole proprietorship along with a corporation.
One benefit of forming an LLC in the state of Texas is that if the LLC has debts or if it is sued, then you will stay protected. This form of organization requires understanding the cost associated with setting it up, drafting an operating agreement, meeting specific requirements, managing taxes, preparing an annual report, and considering the structure of a single member LLC. There are various other benefits and advantages of an LLC as well, including the option to form an anonymous LLC for additional privacy.
There are plenty of advantages to creating an LLC. It makes your business official in the eyes of the state and in the eyes of consumers. That’s not the only benefit of creating an LLC in Texas, they also limit your liability and taxes.
When it comes to sole proprietorships and partnerships, they are considered the same entity as their owner. This can be dangerous because it means all business debts are actually personal debts. Additionally, if your business is accused of negligence, then your personal assets might be at risk and taken as the result of a judgment.
Because LLCs are their own entities, they are also completely responsible for their own debts and obligations. You can lose the money that you have put into a company, but your personal assets will remain safe. If you have a partner, employee, or business that is sued, your personal assets will be protected.
LLCs offer many options for taxation. Because you can elect your tax status, you can attempt to legally pay less in taxes. If you were to choose to be taxed as an LLC it is the same as being taxed as either a sole proprietorship (single-member LLC) or a partnership (more than one member). This means that you would benefit from “pass-through” taxation, which means that the LLC itself does not pay any LLC taxes or corporate taxes.
Rather, any income from the LLC goes through to the owners, and then the owners pay taxes on their own personal tax returns. Another option is to file as either an S corporation or a C corporation. This can allow you to pay lower taxes if your personal income puts you in a high tax bracket.
When you form an LLC it means that as an owner you choose how the LLC is run. You can decide how you wish to distribute profits, and how you wish everyone to be paid out. You do not need to be paid out equally. Corporations on the other hand must distribute profits in accordance with how many shares are owned. This makes LLCs a lot more flexible.
Although S corporations are also given pass-through taxation, there are many restrictions when it comes to ownership. There are no restrictions on the number or type of owners an LLC can have, but an S corporation is limited to 100 people who reside in the United States.
There is also no structure for how an LLC must be run. Corporations are required to have a board of directors to oversee the company and hire officers for the day-to-day activities. Instead, an LLC has no formal structure. You can make choices for how you wish to run the business in your operating agreement.
The most important benefit of forming an LLC is that you are afforded privacy protection. Forming anonymously means that your name will not be linked to your LLC. This can be helpful if you wish to buy property without your name being attached to it.
Although there are many benefits to forming an LLC, there are also a few disadvantages. Some states charge annual filing fees, but Texas is not one of them. You can also split your income, but you will be required to pay self-employment taxes.
In the state of Texas, there are also franchise taxes which can be quite expensive. It can also feel limited when it comes to transferability restrictions. In order for a member to leave or join the LLC, all members must agree in writing.
Choosing to form an LLC is a great idea if you are just starting your business, or if you are operating as a sole proprietor. You might want to consider forming an LLC for asset protection because it limits your personal liability. They can offer flexibility in terms of ownership and management and offer tax benefits as well. Many professionals choose to form LLCs.
Known as PLLC, in Texas, professionals these organizations are formed specifically for individuals who provide professionally licensed services.
Examples of Professional LLCs include:
There can be numerous aspects involved in the formation of an LLC in Texas. You need to file properly, stay in compliance, and consider how you wish to elect taxation. Hiring a business lawyer can help you to determine what is the best course of action for you.
Especially because a state office is not legally allowed to provide legal advice, you want to ensure that you are on the right track. Legal guidance is always a good option. If you have any questions regarding the setup of your Texas LLC or our registered agent service, one of our paralegals will be happy to help. Simply reach out via our contact form or give us a call at +1 (307) 683-0983.