Deductions: An unincorporated business could be missing out on valuable tax breaks.

Reduced Self Employment Taxes: An S-Corp LLC can reduce the SE tax burden by paying a salary to owner of the LLC.

Read more about S-Corp LLCs in our LLC Taxation article.

Larger Contribution Limits: Your LLC allows you to set up both retirement funds and life insurance policies with greater contribution limits so you can set aside money for your future and your family.

Disclaimer: We are not CPAs nor tax professionals and nothing in this article or on this site should be considered as tax or legal advice.  Every LLC’s tax situation is different, and tax situations change over time as a company grows and becomes more profitable.  Be sure to discuss with a tax professional before you make any decisions on the structure of your new LLC or change the structure of your existing LLC.

LLCs do not have their own federal income tax classification.  As such, the LLC gets to choose between the existing tax classifications.  This is an understated benefit of an LLC.  The LLC’s tax classification options are:

1. Sole Proprietorship/Partnership;
2. S-Corporation; or
3. C-corporation.  

By default (i.e. unless you file a tax election with the IRS) a single-member LLC will be taxed like a Sole Proprietorship and a multi-member LLC will be taxed like a Partnership, both of which are considered “pass-through” structures which means the owners, not the LLC, will have the income tax burden.

Read more in our LLC Taxation article.

Disclaimer: We are not CPAs nor tax professionals and nothing in this article or on this site should be considered as tax or legal advice.  Every LLC’s tax situation is different, and tax situations change over time as a company grows and becomes more profitable. Be sure to discuss with a tax professional before you make any decisions on the structure of your new LLC or change the structure of your existing LLC.

LLCs have few ownership restrictions; they can be owned by one or more owners and the owners can be individuals, foreigners, trusts, corporations, partnerships or other business entities. Single-member LLCs are very common, but there are no restrictions regarding the maximum number of members.

Additionally, unlike corporations, there are few restrictions regarding formal management structures; the LLCs are allowed to be managed in whichever manner the owners of the LLC deem appropriate. Corporations are subject to mandatory boards of directors and officers and there are mandates regarding record-keeping and reporting.

The post-formation requirements are minimal.  Each year the LLC must file an annual report (aka Texas franchise tax return) with the Texas comptroller by May 15th of each calendar year. Although the annual report is required for all businesses, franchise taxes are not owed unless the business makes more than $1.13MM in revenue in a calendar year.

As with any business, if you are required to collect and pay Texas sales tax, you will be require to report sales quarterly or annual.

An LLC is owned by its members and can be governed by either the members (member-managed LLC) or managers (manager-managed LLC). A manager-managed LLC is very similar in structure to a corporation with a board of directors. A manager-managed structure is most often used when there are passive investors. The investors will be members, but not necessarily decision makers (aka managers).

Member-Managed Example: Four members own an LLC (25% each).  When an action requires a simple majority to approve or consent to an action, 3 of the 4 members would need to agree to take the action. If only 2 members agree, a simple majority would not exist.

Manager-Managed Example: Four members own an LLC (25% each).  The 4 members elect John to serve as the sole manager.  John, as the sole manager, is responsible for making decisions on behalf of the LLC. The other 3 members are essentially passive investors with little control over the direction of the LLC.  The Company Agreement can dictate when the manager(s) must get the consent of the members. Typically, major decisions would require the manager(s) to get the consent of the members whether by a simple majority, super-majority, or even unanimous consent (the level of consent would be dictated by the terms of the Company Agreement).

When hiring us to create your LLC, you will have the option to be a member-managed or manager-managed LLC.

Traditional LLC. A traditional LLC is the most common type of LLC. Any LLC that is not a special kind of LLC (i.e. Professional LLC or Series LLC), is referred to as a traditional LLC.

Series LLC. A Series LLC is really just a traditional LLC with special language that unlocks the ability to use "series" or cells within the Series LLC.  Each (sub) series is insulated from the liabilities of the Master/Series LLC and the other (sub) series.  Read more about Texas Series LLCs or have us create a Texas Series LLC for you.

Professional LLC. A professional LLC ("PLLC") is required only if the business to be conducted by the LLC requires a Texas license. For example, a lawyer must hold a license to practice law, just like a doctor would need a medical license to practice medicine. As such, a law firm or a medical practice would need to be a professional entity like a PLLC.  PLLCs can only be owned by licensed professionals (i.e. only licensed doctors can own a medical practice PLLC). To have use create your PLLC, simply use the entity designation "PLLC" in the order form at the end of the business name.  Read more about Texas Professional LLCs.

S-Corp LLC. Any kind of LLC can elect to be taxed as an S-Corp. When ordering your LLC, you'll see an option for S-Corp taxation.

C-Corp LLC. Any kind of LLC can elect to be taxed as a C-Corp. When ordering your LLC, you'll see an option for C-Corp taxation.

For more on S-Corp and C-Corp taxation see our article on LLC Taxation.