By Braun & Gresham Attorney & Counselor, Stephen Ringquist
A Practical Guide to LLCs, S Corps, and C Corps
Starting a business in Texas comes with a long list of exciting decisions, and one of the most important is choosing the right business entity. The structure you select can impact everything from taxes to personal liability, day to day operations, and how your business is perceived by clients and investors.
At Braun & Gresham, we help businesses, landowners, entrepreneurs, and families form and structure businesses that support their long-term goals. Whether you’re launching a new venture, creating an entity to manage or develop land, or reorganizing your current operation, this guide will help you understand the basics of business formation in Texas, with a special focus on the popular and flexible Limited Liability Company (LLC).
Why Your Business Structure Matters
Your business entity determines:
- How you pay taxes
- What personal liability you assume
- How you raise capital
- Your recordkeeping and reporting requirements
- How your business is managed and operated
Choosing the wrong structure, or failing to properly maintain it, can create legal exposure, tax complications, and administrative burdens. That’s why it’s critical to consult with experienced legal counsel before forming a business in Texas.
LLCs, S Corps, and C Corps, What’s the Difference?
Each business structure has unique advantages and disadvantages, and not all are right for every venture. Here’s how the most common options compare:
Limited Liability Company (LLC)
An LLC combines the liability protection of a corporation with the tax benefits and operational flexibility of a partnership or sole proprietorship.
Key Benefits:
∙ Limited liability: Members are protected from most personal liability for business debts or lawsuits.
∙ Flexible management: Can be member managed or manager managed.
∙ Pass through taxation: Income is reported on the owners’ personal tax returns unless the LLC elects corporate taxation.
∙ Fewer formalities: Compared to corporations, LLCs are easier and less expensive to maintain.
Ideal For:
Small to medium sized businesses, landowners forming an entity to hold property, family ventures, and those wanting simplicity without giving up liability protection.
S Corporation (S Corp)
An S Corp is a tax election made by either an LLC or corporation. It allows the entity to avoid double taxation while still offering limited liability.
Key Benefits:
∙ Pass through taxation: Income flows to shareholders, who report it on personal returns.
∙ Payroll tax savings: Owners who work in the business may reduce self-employment taxes.
∙ Liability protection: Like LLCs, S Corps shield personal assets from business liabilities.
Drawbacks:
∙ Strict ownership requirements: Limited to 100 shareholders who must be U.S. citizens or residents.
∙ Must pay reasonable compensation to shareholder employees.
∙ More administrative requirements than LLCs.
Ideal For:
Established small businesses with steady profits and owner employees, especially where payroll tax savings may be significant.
C Corporation (C Corp)
A C Corp is a traditional corporation and the default form of incorporated business.
Key Benefits:
- Strong liability protection: Clear separation between owners and the business.
- Unlimited shareholders: Can attract investors and issue different classes of stock.
- Corporate tax advantages: Potential deductions and fringe benefits not available to other structures.
Drawbacks:
- Double taxation: Profits are taxed at the corporate level and again when distributed to shareholders.
- Formalities: Must follow strict rules, including board meetings, bylaws, and detailed recordkeeping.
Ideal For:
Businesses seeking venture capital, planning to go public, or requiring complex ownership structures.
Why LLCs Are a Popular Choice in Texas
In our experience working with clients across Texas, LLCs are by far the most popular entity for new businesses and landowners forming holding companies or operational entities. Their simplicity, tax flexibility, and protective benefits make them a smart option in many cases.
Texas law makes forming and operating an LLC relatively straightforward. The Texas Secretary of State allows online filings, and there is no state income tax on LLC members. Still, selecting an LLC is just the beginning, it must be properly structured and maintained.
What You Need to Maintain an LLC in Texas
LLCs are often marketed as “easy to run,” but like any business entity, they require ongoing maintenance to keep their liability protection intact. Without proper upkeep, courts may disregard the LLC structure in a lawsuit, a risk known as “piercing the corporate veil.”
To maintain your LLC’s protections and good standing in Texas:
1. File Franchise Taxes Annually
Even if your LLC owes no taxes, you must file a Texas Franchise Tax Report and Public Information Report each year. Missing this deadline can lead to forfeiture of your LLC’s right to operate.
2. Maintain a Company Agreement
Also known as an Operating Agreement, this document outlines how your LLC is governed, how decisions are made, how profits are divided, and what happens if a member leaves. Texas does not require this agreement, but it’s crucial for liability protection and avoiding disputes.
3. Keep Finances Separate
LLC owners must not mix personal and business finances. Use a separate business bank account, credit card, and accounting system.
4. Record Key Decisions
You don’t need to hold formal board meetings like a corporation, but it’s wise to keep written records of major decisions, like buying property, taking on loans, or changing ownership.
5. Update Your Records
Notify the Secretary of State of any changes in your registered agent, address, or management structure.
Why a Company Agreement is Critical
Many Texas LLCs operate without a written Company Agreement. This is a mistake. Even for single member LLCs, the agreement:
∙ Demonstrates the LLC is a real, independent entity
∙ Prevents disputes with partners, family members, or heirs
∙ Clarifies roles, responsibilities, and rights
∙ May be required by banks or lenders
At Braun & Gresham, we prepare customized Company Agreements that reflect your unique goals and operations. A boilerplate template simply doesn’t offer the clarity or protection that most business owners need.
How Braun & Gresham Can Help
Forming a business in Texas is more than filling out paperwork, it’s about creating a structure that supports your vision, protects your assets, and stands the test of time. Our attorneys guide clients through every stage of business formation, from selecting the right entity to drafting operating documents, maintaining compliance, and evolving the structure as your business grows.
We also offer ongoing legal support for LLC maintenance, business succession planning, and entity restructuring.
Ready to Form Your Texas LLC or Review an Existing Entity?
Reach out to the business and land law team at Braun & Gresham today. We’re here to help you protect what matters most, whether it’s a family ranch, a new venture, or a legacy property.