When considering what state is best for LLC Incorporation, it’s advisable to check each state’s own separate legal conditions for formal business registration. These differing regulations make for very contrasting business tax environments, as some states are better, tax-wise, than others. Doing business in Texas can be very advantageous, as Texas has all the right elements for business success, ranking better than most for LLC Incorporation.
The Lone Star State has a large population with a relatively low unemployment rate. Coupled with its low income tax, high employee participation rates and equally high total payrolls, Texas appeals to top professionals seeking work and settling there, building communities of a highly educated, invaluable talent source. Texas also has what they call a ‘franchise tax,’ which is capped at 1% of business income – way lower than the income tax in many other states.
An LLC or ‘Limited Liability Corporation’ is essentially a kind of legal protection against personal debt and any future legal troubles incurred by a business. It’s basically treated by the government like a separate person, and depending on membership and shareholder takings, the tax on an LLC can be as little as the amount for a self-employment income, or based on as much as the income each shareholder takes. According to St John’s Law Review, an LLC is “the business organizational form of the future.”
While there are many different regulations in each state’s laws which may prove advantageous for registering an LLC elsewhere, a Texas LLC ranks better than in other states. It has flexible state requirements, and more Americans are registering their LLCs there.
Here are 5 good reasons why you should register your LLC in Texas:
1. Limited Liability
If you’re considering setting up your business in Texas, then structuring it as an LLC will be your best bet. A Texas state requirement, and the main reason people choose to register their business as an LLC, is the ‘limited liability’ part of the corporation, which allows members (or owners) of the company freedom from liability for any debt incurred by the business, including any legal debt resulting from lawsuits. While a corporation also offers limited liability, it requires a lot more formality than an LLC.
2. No Annual LLC Fee
The LLC annual fee is paid to the state every year to make sure your LLC is in compliance. This fee is a set requirement, no matter what your LLC’s income or situation. In other US states, if you fail to pay the annual fee, the state will shut you down. This is the case in over 90% of the states. Unlike others, Texas LLC registration does not include any annual registration costs. These can cost over $90 a piece and they usually include an annual report that has to be compiled by the company.
3. Reasonable Registration Costs
While Texas is not the cheapest state for LLC registration costs (Kentucky happens to be the cheapest at $40), the cost of registration in Texas is pretty average compared to other states in the US. To form an LLC in Texas will cost you $300, which is the same amount for a corporation, but still costs much less than an LLP (a limited liability partnership), which costs $750, plus another $200 per partner. The most expensive states, like Massachusetts for example, have registration costs of around $500 – way more than what you pay in Texas!
4. Tax Flexibility
In Texas, an LLC has a choice on how it is to be taxed. If the LLC has one owner, then a process called ‘pass-through’ will allow the owner to pay just the federal self-employment tax. In an incorporated LLC, a corporate tax rate will be paid based on profits and then again on the income paid out to its shareholders. You may even qualify for an S Corporation filing, which allows the income to pass through to the shareholders instead, though this arrangement only allows a very limited number of stakeholders, and there are rules and regulations around the form of the stock they can actually take.
5. Less Formality, More Flexibility
In Texas, you don’t have to worry about paperwork as much as you do in other states in the US. While most require mandatory annual meetings with proper minutes taking, and elaborate presentations and lengthy reports to be compiled, there is no requirement under Texas law for an LLC to do any of that; it would rather you focus on running your business properly and on making profits. As an added extra, there are also no limits to the number of LLC members you can have when you register in Texas as an LLC.
The freedom from liability for business debt and legal issues, relatively low registration costs, flexible tax treatment, flexibility for membership and minimal formalities, all make Texas one of the best states to consider for your LLC incorporation.