LLC Texas
Forming a Texas Limited Liability Company (LLC) can be a beneficial formation option for your company. Especially if you intend to have multiple members and are looking for partnership-type taxation and management qualities, with corporation-like limited liability. As the name implies, a Limited Liability Company offers members limited liability protection from debts and lawsuits. Although Texas does not provide a pure “pass through” entity status for LLCs because it has a business tax for any business formation, the associated franchise fees are minimal in comparison with the benefits offered by a Texas LLC.
Benefits of Forming a Texas LLC
- Texas LLC members enjoy Limited Liability protection. It means they are mostly personally protected from any liability of the LLC and successful judgments, as well as from the LLC itself.
- A Texas LLC allows for “multi-tiered” ownership wherein an S or C corporation can be a member with no residency restrictions--this can allow for substantial tax benefits, and increased liability protection.
- The LLC allows for the "special allocation" of profits--the disproportionate splitting of Member profits and losses (in different percentages than their respective percentages of ownership). This means that Members can enjoy the benefits of receiving profits (and writing off losses) in excess of their individual ownership percentage, so long as it is clearly delineated in the Operating Texas.
- Franchise tax is computed at the rate of .25% of net taxable capital and 4.5% of net taxable earned surplus. If the amount computed under either part of the basis formula is zero or less, the tax is zero.
- Managing Members' share of net profit is considered earned income because the Managing Member is considered to be an active owner--therefore qualifying the Managing Member for special "fringe benefit" treatment.
- Members are compensated using either distributions of profit or guaranteed payments.
- The Managing Member of an LLC can deduct 100% of the health insurance premiums he or she pays, up to the extent of their pro-rata share of the LLC's net profit, because the profit is considered earned income. Note: If a member has earned income, he or she will also qualify.
- As a Member, you can contribute capital or other assets to the LLC, or loan the LLC money to put dollars or value into the business. You can take dollars out by taking a repayment of your loan, a distribution of profit or a guaranteed payment.
- Credibility. Having the “LLC” after your company’s name will go a long way towards establishing it as a credible company, or enhancing its current credibility, and would be an excellent way to attract potential investors looking for opportunities aligned with good organization and limited liability.
- Texas corporations are only required to list one Director position in the articles of incorporation. There are no residency requirements for the director, though he or she must be at least 18 years of age.
- Only the director and the resident agents are disclosed as a matter of public record in Texas. Stockholders’ names are not a matter of public record.