One of the first and most important decisions when starting a business in Texas is choosing your legal structure. It affects your personal liability, your tax obligations, and how much ongoing paperwork you'll carry. Here's how the main options compare under Texas law.
Limited Liability Company (LLC)
The LLC is the most popular choice for Texas small businesses, and for good reason. You form one by filing a Certificate of Formation with the Texas Secretary of State and maintaining a registered agent in the state. An LLC gives you personal liability protection and pass-through taxation with relatively few formalities. Your internal rules go in a company agreement (Texas's term for an operating agreement).
The Texas series LLC
Texas is one of the states that allows a series LLC — a single LLC that holds multiple protected "series," each shielded from the others' liabilities. It's a useful structure for owners holding several properties or distinct lines of business, though it requires careful setup and recordkeeping.
Corporation
A corporation is a separate legal entity offering strong liability protection and the ability to issue stock, which makes it attractive when you plan to raise outside investment. It comes with more formalities — bylaws, a board, annual meetings — and you'll choose between C-corporation taxation and electing S-corporation status.
Partnerships
When two or more people go into business together, a partnership may fit. A general partnership is simple but exposes every partner to personal liability. Texas also recognizes limited partnerships (LPs) and limited liability partnerships (LLPs), which protect certain partners — common structures for professional firms and investment ventures.
A note on Texas taxes
Texas has no state personal income tax, but most entities are subject to the Texas franchise tax (the "margin tax"). Many small businesses owe nothing because they fall under the no-tax-due revenue threshold, but you still typically file an annual report. We'll help you understand what applies to your situation.
Making the right choice
The best entity depends on your goals, the number of owners, your liability exposure, and your growth plans. We help Woodlands-area founders weigh these factors and set the business up correctly from day one. Reach out to schedule a consultation.