A limited liability company, or LLC, has a wide range of functions and benefits to its owners, also known as members. Choosing the right type of business entity in Texas affects how your profits and losses are taxed and allocated. There are several factors to consider before signing an LLC agreement.
What is an LLC?
A limited liability company combines the benefits of a partnership and a corporation. The owner receives limited liability for debts and increased flexibility in regulating the company.
How the IRS views an LLC
The IRS provides more freedom to an owner who selects this type of business formation. An LLC owner can choose to be taxed as a partnership, S corporation, C corporation or sole proprietor. An LLC receives pass-through taxation that is not taxed twice, unless it is classified as a C corporation for tax purposes.
An LLC with one member is a disregarded entity unless it files to become a corporation. An entity with two members is considered to a partnership unless the owners want it to be taxed as a corporation.
In some states, LLC owners must pay a franchise tax or business privilege tax. The fee is flat or variable based on certain factors, such as the company’s revenue or the number of owners.
Forming your business
Establishing your business as a limited liability company depends on your professional and personal needs. Selecting the correct type of entity also determines the amount of taxation that you will face from the IRS. Plan your LLC carefully in order to receive the greatest protections from the law and the government.
