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Swyft Filings is committed to providing accurate, reliable information to help you make informed decisions for your business. That's why our content is written and edited by professional editors, writers, and subject matter experts. Learn more about how Swyft Filings works, our editorial team and standards, what our customers think of us, and more on our trust page.
Are you starting your own Texas business? You’re about to begin a thrilling journey. If Texas were its own country, its GDP would rank in the global top ten.[1] But while plenty of Fortune 500 companies make their home in the Lone Star State, over 3 million small businesses are based there, too.[2]
This article will show you how to file a Texas LLC to get your small business off the ground. We’ll also review the main differences between an S corp, C corp, and LLC to help you decide which business structure is right for you.
Benefit from unique tax advantages and safeguard your assets when you establish an LLC.
An LLC is a hybrid business structure that combines the liability protections of a corporation with the pass-through taxation of a sole proprietorship.
You must file a certificate of formation with your business, registered agent, and member or manager information to file for a Texas LLC.
A written LLC operating agreement is crucial to help plan management and liability procedures.
A limited liability company, or LLC, is a formal business structure. It defines how your small business will be legally classified by the Texas Secretary of State and taxed by the IRS.
Ultimately, the business structure you choose will depend on the type of business you’re building, among other factors. Let’s review your business structure options as a Texas entrepreneur to help you decide.
The business structure you choose determines your tax status and governing statutes under Federal and state law, which can make a huge difference in your company’s future. We’ll provide a brief overview of the top business structures in Texas so you can feel confident in your decision.
If you’ve never done any paperwork to make your business official and you’re the only member, then you’re the owner of a sole proprietorship. Sole proprietorships pay taxes through the owner’s personal tax returns, and there is no legal separation between their personal and business income.
Sole proprietorships are easy to run but leave entrepreneurs vulnerable to legal and financial catastrophe. Here are some pros and cons to consider.
Pros | Cons |
Liability Protection As a shareholder in the company, you won’t be personally liable for the business’s debts. This protection is critical for risky ventures or entrepreneurs with assets to protect. | Paperwork You must maintain a board of directors and coordinate your shareholders as a C corp. In Texas, however, you can manage your corporation as a group of shareholders.[3] |
Scale Opportunities C corps can take on shareholders of all kinds, issue stock of multiple classes, and even go public. | Expenses Extensive filing fees, other state fees, and general upkeep for a C corp can be a significant burden. |
Legitimacy With a board of directors, annual shareholder’s meetings, and other regulations on your operation as a C corp, you appear as a legitimate company to investors and partners. | Double Taxation Your C corp is subject to corporate income taxes on its profits, and then shareholders are taxed again on their personal income when they receive dividends. LLCs and other business structures can avoid this. |
An S corp is a tax classification available to C corps and LLCs that meet specific IRS requirements.
S corps can enjoy pass-through taxation, which allows C corps to avoid double taxation. The tax designation also allows LLC and C corp members to draw reasonable salaries and claim dividends without paying self-employment taxes.
While the tax advantages of an S corp are advantageous, there are some cons to consider. An LLC also already has access to most of the benefits of an S corp, so it’s wise to talk to an attorney, accountant, or business expert before electing the status.
Pros | Cons |
Pass-Through Taxation Rather than experiencing the double taxation that C corps are subject to, S corps benefit from pass-through taxation. | Paperwork and Expenses Electing S corp status requires an extra filing fee and adherence to specific guidelines, complicated tax forms, and annual maintenance. |
Self-Employment Tax If your small business is making a substantial profit, you might slim down your self-employment tax expenses as the owner of an S corp. | C Corps Limits C corps wishing to elect S corp status can only issue one class of stock and are limited in shareholders numbers, among other requirements.[4] |
A limited liability company (LLC) combines the liability protections of a corporation with the pass-through taxation of a sole proprietorship. The combination of these two advantages explains an LLC’s power and popularity.
The owners of an LLC are called members, and an LLC can have as many members as it wants.[5] Little regulation or oversight dictates how members can run an LLC. This flexibility is another big draw for entrepreneurs who fear being hemmed in by the regulations of a C corp.
LLCs are limited in their ability to raise money, and it can be tricky to change ownership as individual members. However, alongside the unique advantages of this hybrid structure, this isn’t always such a big deal.
Pass-Through Taxation | Liability Protection | Management Flexibility |
Members of an LLC avoid corporate taxes. Instead, they claim the company’s profit and loss on personal income taxes. | LLC members gain a legal separation between their personal and business assets. This protection reduces vulnerability for business owners. | Unlike C corps, LLCs can operate however they please. An LLC operating agreement also helps dictate how much compensation each member receives. |
The LLC business structure presents some key advantages to entrepreneurs in Texas. In the following section, we’ll take you step-by-step through the filing requirements for your LLC, from filing fees to how to choose the best name for your small business.
If you’re ready to begin the LLC formation process, dive in to find out how to get your LLC official with the Texas Secretary of State.
A business name must stand out from the rest to succeed. Finding a business name that is unique and distinguishable from the other millions of Texas businesses is your first task on the way to forming your LLC.
State law outlines naming conventions you must follow when selecting an LLC name that the Texas Secretary of State will accept.[6] Here are some guidelines to keep in mind.
Your LLC name must include an “organizational identifier” for your business type.[7] This means you must use one of these words or abbreviations in your LLC name:
Limited Liability Company
Limited Company
L.L.C
L.C.
Ltd. Co.
There are also some words you can’t include in your LLC name. Avoid any terms that:
Suggest your business is associated with the government
Suggest your business is breaking the law
Suggest you are an insurance company, bank, or university, unless you clearly are one
Include “bail bond,” unless you’re legally registered and organized to manage bail bonds
Relate to the Olympics without the consent of the United States Olympic Committee
Suggest you serve veterans, if not relevant
While following Texas naming conventions is essential, there’s more to it. The trickiest aspect of choosing your company name is ensuring another Texas business is not already using it.
The first step is to conduct a name search to check name availability. You can complete this step in minutes with our free business name search tool or use the Texas Comptroller of Public Accounts taxable entity search.
Once you’ve double-checked that your name is available, you should refer to these rules to ensure it will be distinguishable from other business entities in Texas.[6] Here are the guidelines:
Prepositions
Keywords in your LLC name have to be different from those in another LLC name. This means you can’t include prepositions like “the” or “a” unless the preposition changes the meaning of the name.
“Light Sky Productions” and “Light the Sky Productions” are different
“Light Sky Productions” and “The Light Sky Productions” are the same
Language
Keywords in your LLC name can be the same as those in an LLC name of another language if they have different meanings or are in a different order. If the names sound the same or are derived from the same root word in both languages, they can’t be the same word with the same meaning.
“Sky and Sea Tours” and “Ciel y Mar Tours” are different
“Sea and Sky Tours” and “Sky and Sea Tours” are different
“For Mothers Pies” and “Four Mothers Pies” are different
“Four Mothers Pies” and “4 Mothers Pies” are the same
Grammar
Capitalization and punctuation differences are not sufficient to make names distinguishable.