When starting up a business in Texas, owners must choose how they will structure their companies. This step is important for the operation, as well as for the liability and taxation of their businesses. Among other formation options, fledgling business owners may consider structuring as limited liability companies.
According to the Texas Secretary of State, the members of an LLC, or the owners, may include an individual or group of people, trust, corporation, or other such legal or commercial entities. In the certificate of formation for the company, which must be submitted to the Texas Secretary of State, LLCs and their members specify the management structure for their businesses. This may include the members running the company themselves or hiring managers to handle the day-to-day operations.
Forming an LLC creates an entity separate from the individual owner or owners. Under this structure type, members can participate in the management of the company, while protecting themselves from any personal liability for legal actions taken against their businesses. For example, the assets of the owners of a general partnership may be at risk if the company is forced to file bankruptcy. With an LLC, on the other hand, members may only be responsible for their investments in the company; their homes, vehicles, savings accounts and other personal assets would not be on the line.
According to the U.S. Small Business Association, the members of an LLC are classified as self-employed for taxation purposes. As such, they are responsible for making self-employment Medicare and Social Security tax contributions. However, the profits and losses of LLCs get passed through to the members’ personal incomes. Therefore, they are not responsible for paying corporate taxes, as the owners of businesses structured with other formation types may be subject to.