If you're looking for great places to start your limited liability company (LLC), chances are Texas may have crossed your mind. With a GDP of $2.6 trillion in 2023 — the eighth highest globally — it's clear why the Lone Star State stands out for entrepreneurs.
But is Texas the right fit for your business? How does it stack up against other states, like Florida, for LLCs? Read on as we explore the benefits and limitations of forming your business in Texas to help you determine whether a Texas business address is the right choice for you.
Texas is a business-friendly state that attracts many startups and established companies — even Elon Musk just moved X (formerly Twitter) and SpaceX's headquarters to the Lone Star State.
Here’s a look at what makes Texas so attractive for LLCs and entrepreneurs:
One of the greatest benefits of forming an LLC is limited liability, which keeps personal and business assets separate. Business creditors can't go after owners' personal assets, and personal creditors can't go after business assets.
That said, there are some remedies for creditors, such as charging orders and foreclosure. In Texas, charging orders are the sole remedy for creditors, meaning they can only request payment from your share of the LLC’s profits to cover your debt. Unlike in California, where creditors can foreclose on your interest in the LLC if the charging order isn't sufficient, Texas gives extra peace of mind for asset protection.
Additionally, Texas allows you to create an asset protection program where you hold business assets in different sub-companies or subsidiaries that are tied to your LLC. By holding assets differently, you minimize your risk in the event of a lawsuit. This is because each series is considered a separate business entity — plaintiffs can only sue the sub-company they work with.
Most states require LLC owners to pay fees when filing their documents with the secretary of state.
In Texas, the state filing fee is $300. Granted, this is higher compared to California ($70), Delaware ($90), and Washington DC ($99). However, Texas only charges the filing fee once, with no additional recurring fees.
Other states require annual or biennial fees that can chip away at profits. For example, California charges $800 annually, plus an additional $20 every two years, Delaware charges $300 annually, and Washington DC requires $300 biennially.
Texas offers LLCs pass-through taxation, similar to Florida and California. Under this policy, businesses pass their income and losses on to shareholders, who report them on their personal tax returns. This means LLCs in the state do not incur corporate tax.
In Texas, single-member and multi-member LLCs can choose to be taxed as S-corporations or C-corporations. Entities that elect to be taxed as S-corps continue to enjoy the pass-through status, minimizing tax obligations.
If a Texas LLC opts for C-corp status, it avoids double taxation at the state level, as Texas has no corporate or income tax. However, it's important to note that C-corp status will impact federal tax obligations with the IRS.
Texas gives LLC owners a lot of flexibility in choosing how to structure and operate their businesses. As an entrepreneur in the state, you can choose a single-member LLC or a multi-member LLC, depending on whether you have business partners.
Additionally, you do not have to hire formal corporate officers to help run your business — you can be a member-managed LLC and divide managerial tasks among the owners. You also don't need to hold annual meetings, take meeting minutes, or file an annual report as you would in states like Florida, Delaware, or California. This freedom allows for simpler management, saving you time and resources.
As with any state, there are a few downsides to taking your business to Texas. Here are some limitations of forming your LLC in the state:
Texas requires LLCs to have registered agents to receive official and legal documents, such as subpoenas, on their behalf. This can be an extra expense that some new businesses find challenging.
However, registered agents offer real value. They can offer flexibility, letting you operate outside standard hours or even from a different state. Ultimately, they’re there to handle essential and official correspondence for you. Registered agents can also help protect your privacy by keeping your personal address off public records for important mail.
So, while this requirement might seem like a drawback, it can actually be a great benefit for LCC owners.
Unlike corporations in Texas, LLCs don’t divide ownership into shares, which means you can't issue stock to raise capital if you want to expand the business.
The only way to raise capital is for investors to become new LLC members — a process that can be lengthy and complicated. Here’s what would need to happen:
Texas imposes sales and franchise taxes, raising product costs and impacting your LLCs' profits.
Sales tax generally impacts industries that deal in tangible goods and taxable services, like retail and hospitality, which must collect it on most transactions. In contrast, the franchise tax mainly affects larger businesses like real estate and manufacturing, as they're likely to exceed the $2,470,000 exemption threshold.
That said, this tax limitation is balanced by the benefits of pass-through taxation and no annual fees, making Texas an attractive choice for many business owners.
Thanks to its tax advantages and asset protection, Texas can be an excellent choice for LLC formation. If you're ready to start, establish your business presence using a virtual address. It's more affordable than a physical office space, offers more privacy, and lets you register your business quickly.
Stable is one of the best virtual business address providers for LLCs. With Stable, you’ll get an official local address, plus mail management services like scanning and forwarding to help you stay on top of your correspondence from anywhere. Stable offers Austin, TX addresses, plus eight other metropolitan areas across the U.S.!
We also offer registered agent services, so we can handle official mail on your behalf and keep you compliant. With Stable managing this side of your business, you’ll have more time to tackle the tasks that matter to you and concentrate on growing your business.
Get a Stable address today to establish your LLC in Texas or any other state!
