Texas LLC Comparisons — Entity Types & State vs. State
Choosing the right business structure is one of the most important decisions for your Texas business. This section compares LLCs to other entity types (sole proprietorship, corporation, S-corp, partnership) and compares forming in Texas versus other popular states. Start with the comparison most relevant to you, or see our formation guide if you have already decided on a Texas LLC.
Entity Type Comparisons
- LLC vs. Sole Proprietorship — liability protection vs. simplicity
- LLC vs. Corporation — flexibility vs. structure
- LLC vs. S-Corp — understanding the tax election (they are not separate entities)
- LLC vs. Partnership — limited liability vs. general partnership exposure
State vs. State Comparisons
- Texas vs. Delaware LLC — Court of Chancery vs. simplicity and cost
- Texas vs. Wyoming LLC — two no-income-tax states compared
Quick Comparison Table
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Get Started| Factor | Sole Proprietorship | LLC | Corporation (C-Corp) | S-Corp (tax election) |
|---|---|---|---|---|
| Liability protection | None | Full | Full | Full |
| Formation cost in Texas | $0 | $300 | $300 | $300 + S-corp election |
| State income tax | None (TX) | None (TX) | None (TX) | None (TX) |
| Franchise tax applies | No | Yes (if >$2.47M) | Yes (if >$2.47M) | Yes (if >$2.47M) |
| Self-employment tax | Yes (all profit) | Yes (all profit) | No (salary only) | Salary only |
| Ongoing state filings | None | Franchise Tax Report (May 15) | Franchise Tax Report (May 15) | Franchise Tax Report (May 15) |
| Complexity | Lowest | Low | High | Medium-High |
| Separate tax return | No | No (single-member) / 1065 (multi) | 1120 | 1120-S |
When Each Structure Makes Sense in Texas
Sole proprietorship: Testing a business idea with minimal revenue and low liability risk. Not recommended once you have assets to protect or earn meaningful income.
LLC (default taxation): The sweet spot for most Texas small businesses. Liability protection + simplicity + no state income tax. Best when net profit is under $60,000-$80,000 or when the business is primarily passive (real estate, investments).
LLC with S-corp election: Best when net profit consistently exceeds $60,000-$80,000 and the owner actively works in the business. Saves 15.3% self-employment tax on distributions while keeping LLC flexibility.
Corporation (C-corp): Raising venture capital, planning to issue stock options, or retaining significant earnings for reinvestment. Uncommon for small Texas businesses due to double taxation on distributions.
Partnership (general): Rarely recommended — offers no liability protection. Use a multi-member LLC instead for identical tax treatment with added liability protection.