So many aspects of running a business in Texas, including your taxes and day-to-day operations, depend upon the business structure you choose. Therefore, it is important to consider carefully based on your individual situation. It is not always easy to convert to a new structure if you change your mind later. 

Due to the recent surge in popularity of limited liability companies, you may think that they represent a relatively new type of structure. However, LLCs have been around since 1977. They combine many of the benefits associated with both corporations, partnerships and sometimes even sole proprietorships. However, before you start an LLC, you should look at the entire picture. They do have their downsides and may not be appropriate for your particular situation. 

According to Entrepreneur Magazine, running an LLC involves more paperwork than, for example, a sole proprietorship. You must file some of your paperwork on an ongoing basis: 

  • Business bank account 
  • Annual report 
  • Tax deposit coupons 
  • Quarterly withholding 

There are other types of paperwork that you only need to fill out once at startup, such as the application for your employer ID number. 

Another potential drawback of an LLC is that there is no stock. This may make it more difficult to attract and retain employees since you cannot offer them the incentive of becoming a shareholder. It may also make it more difficult to find investors. 

However, starting an LLC also offers you potential benefits. If you run a corporation, you must file personal taxes and separate business taxes. With an LLC, you report profit and loss from your business on your individual return. An LLC offers you limited liability, meaning that only the capital you pay into the business is at risk. 

By definition, only one person can operate a sole proprietorship, with a possible exception for married couples. An LLC allows you to take advantage of some of the benefits of a sole proprietorship while partnering with others if desired. 

The information in this article is not intended as legal advice but provided for educational purposes only.