For small businesses in Dallas, the corporate structure a business chooses to incorporate as can often directly be impacted by the regulations implemented by the state of Texas. For those looking to officially launch their venture, figuring out the differences between a Limited Liability Company (LLC) and a Subchapter S-Corporation (S-Corp) can assist in making the right decision. Below are five factors to consider when choosing between LLC and S-Corp in Texas.

1. Cost of Formation and Operation

When deciding between LLCs and S-Corps, the cost associated with either entity will likely be the primary factor to consider. An LLC generally requires the lowest cost to incorporate, ranging from $50 to $500 with minimal ongoing costs, and S-Corps generally require more costly filings, potentially reaching $1,000 or more. Despite the larger up-front cost, the S-Corp offers a greater advantage when it comes to cost savings in terms of taxation benefits.

2. Tax Benefits

The biggest tax benefit for an S-Corp is in pass-through tax structure. Depending on what type of business you have, the S-Corp structure will be the most beneficial. This means that the money made by the business is passed on the S-Corp’s shareholders and you don’t get taxed twice. Furthermore, the S-Corp is not subject to self-employment taxes—a substantial advantage. On the other hand, an LLC is subject to this tax when more than one person is a member.

3. Flexibility

LLCs are the more flexible choice for business owners in Texas. LLCs offer fewer restrictions on management, ownership, and other activities. LLCs also have fewer filing requirements and reporting demands than S-Corps, making LLCs the more suitable if you wish to operate with less government oversight. An LLC also provides the owner with more privacy, as it does not require the filing of corporate documents such as those required for an S-Corp.

4. Management Structure

One of the biggest differences between the LLC and S-Corp is in how management is structured. An LLC does not have a formal management structure; it is managed by its members. Contrastingly, an S-Corp requires that there is a set of officers such as a president, secretary, and treasurer. This structure provides more assurance that the company is being managed in the intended manner.

5. Asset Protection

From an asset protection standpoint, both LLCs and S-Corps provide some form of protection. Because of the “corporate veil” intrinsic to both of these entities, debts and other judgments against the company cannot be enforced against the owner’s personal property. However, when it comes to LLCs, Texas has made certain assets, such as wages, inheritances, and personal investments, completely exempt from collection.

Whether you choose an LLC or an S-Corp as your small business entity in Dallas, it is important to understand the laws and regulations as they apply to your chosen business structure. The factors above will help you evaluate and decide which entity is right for you and your business. In either case, seeking legal advice from a qualified lawyer can help you make an informed decision and ensure that you are legally compliant. For experienced and knowledgeable business attorneys in Dallas, UpCounsel has a network of dedicated lawyers to provide high quality, cost-effective legal services.

Topics:

LLC,

S-Corp,

Dallas