Frequently Asked Questions Regarding Corporation vs LLC
Are you a business owner in Dallas considering setting up a corporation or a limited liability company (LLC)3 min read
Are you a business owner in Dallas considering setting up a corporation or a limited liability company (LLC)? If so, there are several things to think about and consider to ensure that you make the best decision for your business. Having an understanding of the differences between a corporation and an LLC and what the requirements are for each entity is key to making an informed decision. Here, we will answer the most frequently asked questions to help you understand the different aspects of incorporating a corporation or forming an LLC in Dallas, Texas.
What is the Difference Between a Corporation and an LLC?
The most basic difference between a corporation and an LLC is that a corporation is a separate legal entity while an LLC it is not. This means that a corporation, unlike an LLC, is its own separate legal entity apart from its owners (shareholders). By forming a corporation, the shareholders are legally separate from the business’s debts and liabilities. This means that shareholders of a corporation will not be held personally liable if the business fails; however, the shareholders are liable to the debts and liabilities of the corporation to the extent of their investment.
An LLC, on the other hand, is not a separate legal entity from its members; it is functionally similar to a sole proprietorship or partnership. This means that the members of the LLC are personally liable for all debts and liabilities of the business, and the financial risks are borne by the individual members.
What are the Tax Differences Between a Corporation and an LLC?
The tax structure of a corporation is separate from its shareholders, and it is taxed as such. Both income and losses of the corporation are reported and taxed on the corporation’s federal tax return—the form 1120. Corporate profits are taxed at the corporate rate, which, depending on the profits, can range from 15 to 35%.
An LLC, because it is not a separate entity from its members, is taxed at the shareholder or member level. The LLC is considered a pass-through entity, which means the LLC does not pay taxes; the income and losses are reported on the shareholders’ or members’ personal tax return. All members of the LLC are taxed at their personal tax rate, which can range from 10 to 37%.
What is the Cost of Establishing a Corporation and an LLC?
Establishing a corporation or an LLC can require a substantial amount of paperwork, so it is important to plan accordingly. In Texas, the cost to incorporate a corporation is $25.00, and the cost to form an LLC is $300. Additionally, you will need to pay a filing fee when filing the Articles of Incorporation for a corporation or the Articles of Organization for an LLC. The filing fee for both entities in Texas is $750.
It is also important to consider the cost of ongoing taxes and fees when forming a corporation or an LLC. Annual franchise taxes are applicable for all corporations and LLCs in the state of Texas. The franchise tax for corporations is 0.75% of the total taxable margin, and the franchise tax for LLCs is 0.625% of the total taxable margin. LLCs also require an ongoing filing fee of $200 each year.
What are the Requirements for Incorporating a Corporation or Forming an LLC in Texas?
Before incorporate a corporation or form an LLC in Texas, you will need to choose a name that is not already in use. You will also need to choose a registered agent and a physical business address in the state of Texas. Your registered agent must have a physical address in Texas and will be responsible for accepting any legal documents or notices from Texas’s Secretary of State on your behalf.
Once these requirements are satisfied, you will need to file the required documents, such as the Articles of Incorporation for a corporation or the Articles of Organization for an LLC. Finally, you will need to obtain any necessary licenses and permits in order to legally conduct business in Texas.
UpCounsel’s team of experienced attorneys can help business owners determine the most suitable business structure for their business and guide them through the process of incorporating a corporation or forming an LLC in Dallas, Texas. Our online attorney network is experienced in working with businesses of all sizes and have the expertise and knowledge to help business owners determine the best business structure for their needs. Working with UpCounsel will ensure that the legal aspects of setting up a corporation or an LLC are handled properly and efficiently.