Steps to Take when Deciding on a Corporate Structure in Texas
If you're on the way to getting your business started, you need to ultimately come to a decision regarding the structure of your corporate entity. Forming an S Corp in Texas has several advantages and disadvantages, and the same holds true with forming an LLC in Texas or forming an LLP in Texas. Below are a few issues you'll need to clarify before making your final decision.
Tax Ramifications
You need to come to a decision regarding the realistic revenue amount that you'll be generating for the first year or so. The reason is that if you're going to bring in a lot of income, you'll need to think about forming an S Corp in Texas, as that will allow you to avoid being double taxed. However, if you're assuming that your venture will lose money, forming an LLC in Texas may be a good idea as well. Regardless of what you decide, it should be governed by the money you expect to generate.
Management Structure
If you're going to be working with a partner, then forming an LLP in Texas may be the best choice, as each of you will own a percentage of the company commensurate with the amount that each of you invested at the beginning. If you're going to be working by yourself, then forming an LLC or an S Corp in Texas may be more advisable, as there are no splits or distributions that will be necessary.
Business Model
If your business will be one where services are going to be provided as opposed to products, or vice versa, that could affect your decision. Many service providers decide that forming an LLP in Texas is the best choice, as the nature of what you're providing is intangible. However, offering products may lead you to decide that forming an LLC or a S Corp in Texas would be the best choice.
Projected Expenses
If you're going to be hiring employees or even independent contractors immediately, then forming an S Corp in Texas would be a solid choice, as would an LLC. The reason here is that you need to protect yourself from liability, and payroll taxes will become part of your ongoing operating expenses along with insurance premiums and other costs that are associated with hiring and maintaining personnel.
Overall, there are still other questions that you need to answer before making a decision on your business structure. If you'd like individualized help in making this decision, contact the professionals at Texas Legal Entities to schedule an appointment.
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