Establishing Your Enterprise in Texas: A Professional’s Guide to LLCs and Corporations.
Texas, with its sprawling economy encompassing energy, technology, healthcare, and a thriving entrepreneurial spirit, is a prime destination for business formation. For entrepreneurs seeking to establish or expand their operations in the Lone Star State, a critical foundational decision involves choosing the appropriate legal structure: a Limited Liability Company (LLC) or a Corporation. This choice significantly impacts your legal liability, tax obligations, administrative responsibilities, and future growth potential.
At Sure Financial and Tax Services LLC, we specialize in guiding businesses through the intricate process of entity formation and ongoing compliance in Texas. This comprehensive guide provides a professional overview of the core distinctions, advantages, and formation requirements for both LLCs and Corporations, empowering you to make an informed decision for your Texas enterprise.
The Texas Limited Liability Company (LLC): Flexibility and Personal Asset Protection
The LLC is an incredibly popular business structure in Texas, offering a beneficial blend of personal asset protection (similar to a corporation) with the operational simplicity and potential for pass-through taxation typically associated with partnerships or sole proprietorships. Texas’s unique franchise tax applies to LLCs, but there’s a significant “no tax due” threshold.
Key Advantages of a Texas LLC:
Limited Personal Liability: This crucial benefit shields your personal assets (such as your home, savings, and personal vehicles) from the LLC’s business debts, lawsuits, and other financial obligations.
Pass-Through Taxation (Federal Income Tax): By default, Texas LLCs are treated as “pass-through” entities for federal income tax purposes. This means that business profits and losses are passed directly through to the owners’ personal tax returns, avoiding the “double taxation” that can occur with C-Corporations.
LLCs also offer the flexibility to elect to be taxed as an S-Corporation or a C-Corporation if strategically advantageous.
Operational Flexibility: LLCs generally have fewer formal requirements and ongoing compliance obligations compared to corporations. This allows for greater freedom in structuring management, decision-making, and profit distribution, typically outlined in an internal Company Agreement (Operating Agreement).
No Annual Registration Fee (to Secretary of State): Texas LLCs do not pay an annual registration fee to the Secretary of State.
No Publication Requirement: Texas does not require LLCs to publish notice of their formation in newspapers.
Texas Business Taxes Applicable to LLCs:
Texas Franchise Tax: This is a privilege tax imposed on taxable entities (including most LLCs and corporations) doing business in Texas. The tax is based on the entity’s “margin.”
No Tax Due Threshold: For 2024 and 2025, if your total revenue is $2,470,000 or less, your LLC will owe no franchise tax but may still need to file a Public Information Report or Ownership Information Report.
Tax Rates (for revenue above threshold):
Retail or Wholesale Businesses: 0.375% of taxable margin.
Other Business Types: 0.75% of taxable margin.
The margin can be calculated in several ways (e.g., total revenue multiplied by 70%, total revenue minus cost of goods sold, total revenue minus compensation, or total revenue minus $1 million).
The Franchise Tax Report is due by May 15th annually.
Sales and Use Tax: If your business sells tangible personal property or certain taxable services, you are required to collect and remit Texas sales or use tax. The statewide sales tax rate is 6.25%. Local taxing jurisdictions (cities, counties, special purpose districts, and transit authorities) can impose an additional 2%, for a maximum combined rate of 8.25%. You must obtain a Sales Tax Permit (Seller’s Permit) from the Texas Comptroller of Public Accounts, which is free.
Employer Withholding Tax: If your LLC has employees, you will be required to register for and remit federal and state unemployment insurance (UI) taxes. Texas does not have a state individual income tax, so there is no state income tax withholding for employees.
Local Licenses/Permits: While Texas does not have a statewide general business license, specific state, county, and local business licenses and permits may be required depending on your industry, profession, and location (e.g., occupational licenses for certain fields, zoning permits). It’s crucial to check with the local city and county clerk’s offices where your business operates.
Forming Your Texas LLC: Key Steps (as of July 2025)
Name Selection: Choose a unique business name that includes “Limited Liability Company,” “Limited Company,” or the abbreviations “LLC,” “L.L.C.,” “LC,” or “L.C.” The name must be distinguishable from other entities on file with the Texas Secretary of State (SOS). You can check for name availability using the SOS’s online Business Search tool. You can optionally reserve an available name for 120 days by filing an Application for Reservation or Renewal of Reservation of an Entity Name (Form 501) for a $40 fee.
Assumed Name (DBA): If you plan to operate under a name different from your legal LLC name (a “doing business as” or “DBA” name), you must file an Assumed Name Certificate with the SOS for a $25 fee. This certificate is typically good for 10 years.
Appoint a Texas Registered Agent: Every Texas LLC must designate a registered agent. This individual or entity must have a physical street address in Texas (not a P.O. Box) where legal documents and official notices can be received during regular business hours. The registered agent must be an individual Texas resident over 18 or a business entity authorized to transact business in Texas. An LLC cannot be its own registered agent.
File Certificate of Formation – Limited Liability Company (Form 205): This is the official document that legally creates your LLC. It is filed with the Texas Secretary of State. The filing fee is currently $300. This can be filed online through SOSDirect or by mail. The Certificate of Formation must include:
The LLC’s name.
The initial registered agent’s name and address.
The principal office street address (cannot be a P.O. Box).
The name and address of the organizer(s).
The effective date (can be a future date).
Whether the LLC will be managed by members or managers.
Note: If forming a Series LLC, this is indicated on the Certificate of Formation with no extra fee.
Prepare a Company Agreement (Operating Agreement): While not legally mandated to be filed with the state, a comprehensive Company Agreement is strongly recommended for all Texas LLCs, even single-member ones. This internal document outlines the ownership structure, member roles and responsibilities, profit and loss distribution, decision-making processes, and procedures for resolving disputes. It is a critical legal document for internal governance and for demonstrating the separate legal existence of your LLC.
Obtain an Employer Identification Number (EIN): An EIN is a federal tax identification number issued by the IRS. You will need an EIN for federal tax filings, opening a business bank account, and hiring employees (even if you’re the only employee). You can apply for an EIN online for free through the IRS website.
Register for Texas State & Local Permits/Licenses:
Texas Comptroller of Public Accounts: Register with the Comptroller for sales and use tax (if applicable) and for franchise tax (even if you expect to owe no tax, you’ll still need to file a report). This can be done online through the Comptroller’s Webfile system.
Local Licenses/Permits: Check with your local city and county clerk’s offices for any required local business licenses or permits specific to your industry or location.
The Texas Corporation: Formal Structure, Defined Governance, and Investor Appeal
A Corporation (C-Corp or S-Corp) functions as a distinct legal entity separate from its owners (shareholders). This structure is frequently chosen by businesses aiming for substantial growth, planning to raise external capital, or those that benefit from a more formalized governance framework. Like LLCs, Texas Corporations are subject to the state’s franchise tax, but also benefit from the “no tax due” threshold.
Key Advantages of a Texas Corporation:
Strongest Liability Protection: Corporations provide the most robust shield for personal assets, completely separating the personal finances of shareholders from the corporation’s debts and legal obligations.
Capital Acquisition: The ability to issue shares of stock makes corporations highly attractive for raising capital from investors, including venture capitalists and public markets.
Credibility: The corporate structure can enhance a business’s perceived professionalism and stability, which can be advantageous in securing large contracts, partnerships, or loans.
Perpetual Existence: A corporation’s existence is independent of its owners, ensuring continuity even with changes in shareholder or management composition.
Well-Defined Legal Framework: Texas’s corporate laws provide a clear and established legal framework for corporate governance and operations.
No State Individual Income Tax (for shareholders): As with LLCs, individual shareholders are not subject to a state income tax on corporate distributions in Texas.
Texas Business Taxes Applicable to Corporations:
Texas Franchise Tax: This tax applies to corporations based on their “margin” (as described for LLCs).
No Tax Due Threshold: For 2024 and 2025, if your total revenue is $2,470,000 or less, your corporation will owe no franchise tax but still needs to file a Public Information Report (PIR).
Tax Rates (for revenue above threshold):
Retail or Wholesale Businesses: 0.375% of taxable margin.
Other Business Types: 0.75% of taxable margin.
The Franchise Tax Report is due by May 15th annually.
Sales and Use Tax: If your corporation sells tangible personal property or certain taxable services, it will collect and remit Texas sales tax (6.25% state, plus any applicable local sales taxes).
Employer Withholding Tax: If your corporation has employees, you will be required to register for and remit federal and state unemployment insurance (UI) taxes.
No Corporate Income Tax: Texas does not have a separate corporate income tax in the traditional sense; the Franchise Tax serves this purpose.
Forming Your Texas Corporation: Key Steps (as of July 2025)
Name Selection: Choose a unique corporate name that includes “Corporation,” “Incorporated,” “Company,” “Limited,” or an abbreviation thereof (e.g., “Corp.,” “Inc.,” “Co.,” “Ltd.”). The name must be distinguishable from other entities on file with the Texas SOS. You can optionally reserve an available name for 120 days for a $40 fee.
Appoint a Texas Registered Agent: A Texas corporation must appoint a registered agent with a physical street address in the state to receive legal and official documents.
Appoint Initial Directors and Officers: Texas requires at least one incorporator. The incorporator(s) will elect the initial directors (at least one director), and the directors will then appoint officers (President, Secretary, Treasurer, etc.). The names and addresses of the initial directors must be included in the Certificate of Formation.
File Certificate of Formation (Form 201): This document is filed with the Texas Secretary of State. The filing fee is currently $300. This can be filed online through SOSDirect or by mail. The Certificate of Formation must include:
The corporate name.
The name and address of the registered agent.
The names and addresses of each incorporator.
The names and addresses of the initial directors.
The total number of authorized shares (and if divided into classes, their designations).
The purpose of the corporation.
The duration (if not perpetual).
Adopt Corporate Bylaws: While not legally required to be filed with the state, every Texas corporation should adopt bylaws. These internal rules govern the corporation’s operations. They define the roles of shareholders, directors, and officers; outline meeting procedures; and detail how stock will be issued and transferred. They are crucial for internal governance and for maintaining the corporation’s separate legal existence.
Hold an Organizational Meeting: The initial directors should convene an organizational meeting to formally adopt bylaws, elect officers, authorize the issuance of shares of stock, and conduct other initial business. Minutes of this meeting should be kept.
Issue Stock: Shares of stock are issued to the initial shareholders as outlined in the Certificate of Formation and bylaws.
Obtain an Employer Identification Number (EIN): An EIN is required for all federal tax purposes, opening business bank accounts, and hiring employees.
Register for Texas State & Local Taxes/Licenses: Corporations must register with the Texas Comptroller of Public Accounts for franchise tax and sales and use tax (if applicable). Secure any necessary state and local business licenses and permits specific to their industry.
File Annual Report/Public Information Report: All Texas corporations must file an annual Public Information Report (PIR) with the Texas Comptroller of Public Accounts by May 15th each year. If the corporation’s revenue exceeds the “no tax due” threshold (currently $2,470,000), they will also file the Franchise Tax Report.
The Essential Modern Requirement: Beneficial Ownership Information (BOI) Reporting (Important Update!)
As of March 21, 2025, the Financial Crimes Enforcement Network (FinCEN) issued an interim final rule that removes the requirement for U.S. companies and U.S. persons to report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act (CTA).
Therefore, if you are forming a domestic (U.S.) LLC or Corporation in Texas, you are currently EXEMPT from the FinCEN BOI reporting requirement.
However, it’s crucial to stay informed about any potential future changes or clarifications from FinCEN. This exemption applies specifically to U.S. entities. Foreign entities registering to do business in the U.S. may still have reporting obligations.
Making the Right Choice for Your Texas Enterprise
The optimal business structure for your venture in Texas depends on your specific objectives and operational preferences:
Choose a Texas LLC if you prioritize strong personal liability protection, desire operational flexibility with fewer internal formalities, and prefer “pass-through” taxation for federal income tax purposes. The high “no tax due” threshold for the Texas Franchise Tax makes LLCs very attractive for smaller to medium-sized businesses.
Opt for a Texas Corporation if your plans involve raising significant external capital, require a highly formalized management structure, or if a traditional corporate framework (with its defined roles for shareholders, directors, and officers) is preferred by investors or industry standards. While subject to the Texas Franchise Tax, the same “no tax due” threshold applies, making it tax-efficient for many corporations as well.
At Sure Financial and Tax Services LLC, we provide comprehensive support for business formation and ongoing compliance in Texas. Our expertise ensures your business is established on a solid legal and financial foundation, allowing you to confidently pursue opportunities in Texas’s thriving and expansive economic landscape.
Ready to establish your business in Texas?
Contact Sure Financial and Tax Services LLC today for a strategic discussion on the optimal entity structure for your unique needs.
Next step… fill up the information sheet to register your corporation.
