LLC vs. Corporation in Texas

The Similarities Between LLCs and Corporations

LLCs and corporations are both legal structures that are sperate from their owners. Along with that, LLCs and corporations are similar in the following ways:

-Cost: The formation costs for a Texas LLC and a Texas corporation are identical.

-Liability protection: Both LLCs and corporations provide a barrier between the business's liabilities and the owners' personal assets. Owners of both entity types are generally not personally liable for business obligations.

-State registration: LLCs and corporations are both established by filing formation documents with the state.

-No annual costs: Neither Texas LLCs nor Texas corporations have annual costs.

-Perpetual existence: Both LLCs and corporations have perpetual existence, allowing them to continue existing even if owners leave the business or pass away.

-Legal formalities: Both LLCs and corporations are required to follow certain legal formalities, such as filing a Certificate of Formation with the state.

-Annual reporting: Both LLCs and corporations are obligated to file an annual report with the Texas Comptroller.

-One or more owners: Both LLCs and corporations can have one or multiple owners. A single-owner LLC is referred to as a single-member LLC.

-EIN requirement: Both LLCs and corporations need an EIN (federal tax ID) to open a bank account.

-Professional varieties: Both LLCs and corporations offer professional varieties, such as a professional LLC (PLLC) or a professional company (PC).

The Differences Between LLCs and Corporations

The major differences between LLC and Corporation structures are as follows:

-Ownership: A corporation's owners are referred to as shareholders, while an LLC's owners are referred to as members. Both entities have few restrictions on who can become an owner.

-Flexibility: A corporation is considered more formal and rigid, while an LLC is less formal and more flexible. An LLC has more flexibility in how it is taxed, governed, and managed.

-Taxation: A corporation pays federal taxes on its profits, and shareholders pay additional income taxes on the dividends they receive. In contrast, an LLC is a "pass-through" entity, meaning that business profits and losses are reported on the member's tax returns.

-Management: A corporation requires both shareholders and directors. Directors govern the corporation. In contrast, an LLC can be managed by its owners (members) or one or more managers. A manager-managed LLC resembles the management structure of a corporation, while there is no member-managed equivalent for a corporation.

-Protection of business assets: Both entity types protect their owners from business liabilities, but only an LLC shields business assets from the personal creditors of the owners.

-Governing documents: A corporation is governed by "bylaws," while an LLC is governed by an "operating agreement," also known as a company agreement.

Dallas Business Attorneys

Deciding whether an LLC or a corporation is best for your business can be a difficult decision. The attorneys at Wilson Whitaker Rynell can help you make the best decision for your business and simplify the process moving forward.