Why Should Dallas Businesses Choose to Operate as an LLC, Corporation, or Other Entity?
The first reason Texas companies should legally form an entity is for the limited liability. If you choose to operate your business without first incorporating or forming a Limited Liability Company (“LLC”), your personal assets may be at risk. When you form a corporation or LLC, you get limited liability status. This means that your personal assets are completely separate (shielded) from your business.
Why put your personal assets at risk when there’s a reasonably easy and inexpensive way to shield them? The liability shield is well worth your effort. Both the LLC form and the corporate form give your company limited liability status, so which one is best for you? Between these two, the biggest determinant is the tax consequence. By default, corporations are subject to double-taxation. This can often be a “deal-breaker”–Corporations get taxed first at the corporate level and then again at the personal level. For corporations, one way around the double-taxation problem is to file for S-Corp status. S-Corp status solves the the double-taxation problem but creates additional hoops you’ll need to jump through (for example, there are restrictions on the number of shareholders your company is permitted to have).
From a tax perspective (and, for that matter, a management structure perspective), the LLC is often the best choice in Texas. An LLC gets to choose whether it’d rather be taxed as a corporation or taxed as a partnership. This is a tremendous advantage to the LLC. Depending on your financial situation, it may be better to get taxed like a corporation, or it may be better to get taxed like a partnership. It’s also worth noting that an LLC is often easier to set up than a corporation.
In fact, the Shutt Law Firm PLLC charges only $600 to set up a single-member LLC; this includes drafting all your formation documents, filing the necessary documents with the State, and giving you an information session and written instruction on how to preserve your limited liability. You can readily find forms on the internet for filing as an LLC with the State of Texas; however, BE CAREFUL. Just because you file a piece of paper and pay the $300 fee to the State does not necessarily mean you have limited liability. There are many formalities you must keep up with to keep your limited liability. That is, if you want the benefits of a limited liability company, you have to act like an LLC–and that entails a lot more than filing with the State.
Consult a small business law attorney to make sure you do what’s necessary to preserve your limited liability status. You should also discuss the tax consequences of the corporation vs. LLC with your accountant and/or your attorney. Many small businesses will not owe any Texas tax (called the “Franchise Tax”), but it’s always best to discuss tax implications with your CPA and/or attorney before making the final choice.
Wondering if you should sign that new consulting agreement, lease, or other business contract? Need to have a legal contract drafted for your small business? Contact the small business attorney in Richardson to see how Shutt Law Firm can help and to see if a flat rate billing arrangement is available in your situation.
