If your business is headquartered in Dallas, or you are planning to launch a small business in the city, you probably need some knowledge of the legal foundations for businesses in the city of Dallas. In particular, you need to understand the differences between limited liability companies (LLCs) and corporations, so that you can make the best legal and financial decisions for your business. In this article, we will discuss the key differences between LLCs and corporations, why LLCs are now the preferred corporate structure, and the advantages of seeking lawyers from UpCounsel to consider local Dallas regulations.

LLC vs Corporation: Key Differences

In general, LLCs and corporations are both separate legal entities under the law. As a separate legal entity, a business entity owned by one or more individual persons or other business entities is legally distinct from its owners, who are referred to as “members” in the case of LLCs or “shareholders” in the case of corporations.

Both LLCs and corporations offer limited liability protections for the entity’s owners—that is, the business entity is liable for the entity’s actions, rather than the owners themselves, and the owners are often personally shielded from creditors who make claims against the business. Additionally, these entities can enter into contracts, acquire and dispose of assets, and even sue or be sued in their own name.

However, there are some key differences between LLCs and corporations that must be considered when selecting the best entity for your business. Here are some of the key differences between the two entities:

Tax Treatment

The primary difference between LLCs and corporations is their tax treatment. LLCs are considered pass-through entities for federal income-tax purposes, which means that the business’s profits and losses flow through the business and are reported on the members’ personal tax returns and are subject to their individual income tax rates. This is similar to the tax treatment of sole proprietorships and partnerships, but with the added benefit of limited liability protection.

In contrast, corporations are subject to double-taxation. That is, the corporation itself is subject to corporate income-tax, and any dividends paid out to shareholders are also subject to individual income taxes for those shareholders.

Flexibility of Ownership

Another key difference between LLCs and corporations is the flexibility of ownership structure. In general, LLCs are much more flexible than corporations with regards to ownership—members can transfer their interest in the LLC without permission of any other member or shareholder, and the interests and roles of each member may be tailored to suit the needs of the business.

In contrast, corporations are required to have a formal ownership structure with well-defined roles for shareholders and elected officers. Shareholders must also adhere to federal and state regulations governing the issuance of ownership interests in the corporation, and interests may not be transferred freely.

Ease of Formation and Management

Lastly, LLCs and corporations differ in terms of ease of formation and management. In general, LLCs are much easier to form and manage than corporations. LLCs require only one member or manager in order to be formed, and managing the LLC may be handled by the members themselves or by hired professionals without any formalities or meetings.

Corporations, on the other hand, require more of an upfront investment of time and notary resources, as well as ongoing management and oversight from the shareholders. Shareholders must typically have meetings to exert control over the corporation’s decisions, and corporations are also subject to additional governments in most states.

Why LLCs are Now Commonly Preferred

Given these differences, it’s no surprise that LLCs have become the preferred entity type for many entrepreneurs and small businesses. LLCs are less expensive to start and maintain, they provide limited liability protections on par with corporations, and their flexibility helps businesses adapt to changing financial and ownership needs.

What’s more, LLCs provide members with the flexibility to structure their business profits in the way that benefits them most tax-wise. LLCs may opt to be taxed either as a corporation or as a partnership, allowing for a level of customization that corporations are unable to match.

The Benefits of Reaching Out to Dallas Area Lawyers with UpCounsel

No matter the size or structure of your business, it’s always advisable to consult with a qualified and experienced lawyer when forming and managing a business in Dallas. Local business laws may vary from state to state, and your lawyer should be familiar with the laws relevant to your business’s structure and operations.

UpCounsel provides access to a network of experienced lawyers from around the country, many of whom specialize in business law and can provide practical and timely advice on forming and managing a business in Dallas. From one-time consults to an entire freelance legal team, UpCounsel is your go-to resource for all your legal needs.

Closing ideas

If you’re looking to start a business in Dallas, it’s important to understand the legal implications of setting up either an LLC or a corporation. From business structuring to taxation, there are important differences that must be taken into account when making this decision. As you consider your options, make sure to seek advice from lawyers familiar with local Dallas regulations, and explore the network of experienced legal professionals available through UpCounsel.