- Author: Michael Burry
- Feb 23, 2026
Starting a business in Texas is an exciting step — but before you open your doors, one of the most important decisions you'll make is choosing the right legal structure. For most entrepreneurs, the choice comes down to two popular options: a
Limited Liability Company (LLC) or a Corporation. Both offer legal protection and legitimacy, but they work differently in ways that can significantly affect your taxes, operations, and long-term goals.
This guide breaks down the key differences to help you make an informed choice. And if you're ready to take the next step, you can find a qualified business attorney to guide you through the process.
What Is an LLC?
An LLC, or Limited Liability Company, is a flexible business structure that combines the liability protection of a corporation with the tax simplicity of a sole proprietorship or partnership. It's one of the most popular choices for small business owners in Texas — and for good reason.
With an LLC, your personal assets (like your home or savings) are generally protected if your business faces a lawsuit or debt. At the same time, you're not locked into rigid management structures or heavy compliance requirements.
Key features of a Texas LLC include: pass-through taxation (profits are reported on your personal tax return), flexible management structure, fewer ongoing formalities, and protection from personal liability.
What Is a Corporation?
A Corporation is a more formal business entity that exists as a separate legal person from its owners (called shareholders). Corporations can be structured as a C-Corp or an S-Corp, each with different tax implications.
Corporations are often preferred by businesses that plan to raise venture capital, bring on multiple investors, or eventually go public. They require more documentation — including bylaws, board meetings, and annual reports — but they also offer a well-established legal framework that many investors and lenders prefer.
Key features of a Texas Corporation include: ability to issue stock, established investor-friendly structure, potential for corporate tax benefits (especially C-Corps), and strong legal precedent in business law.
LLC vs Corporation: Side-by-Side Comparison
Here's a quick look at how they compare across the areas that matter most to Texas business owners:
- Taxation: LLCs default to pass-through taxation, meaning the business itself isn't taxed profits flow to the owners' personal returns. Corporations (especially C-Corps) are taxed at the corporate level and again when dividends are distributed to shareholders (double taxation). S-Corps avoid this by also using pass-through taxation, but with stricter eligibility requirements.
- Management: LLCs can be member-managed or manager-managed, with very flexible operating agreements. Corporations must have a board of directors, officers, and shareholders with a more defined but rigid structure.
- Compliance Requirements: Texas LLCs have fewer ongoing requirements, no mandatory annual meetings or detailed record-keeping rules. Corporations must hold board meetings, keep minutes, and follow stricter state reporting rules.
- Ownership & Investment: Corporations can issue multiple classes of stock, making it easier to attract investors. LLCs offer more flexibility in profit-sharing arrangements but can be less appealing to outside investors.
- Liability Protection: Both structures protect owners from personal liability for business debts and lawsuits — as long as you keep your business and personal finances separate.
Which Is Right for Your Texas Business?
There's no one-size-fits-all answer, but here are some general guidelines:
- Choose an LLC if: You're a small business owner, freelancer, or startup looking for simplicity and flexibility. You want pass-through taxation without extensive paperwork. You're not planning to raise outside investment in the near term.
- Choose a Corporation if: You plan to seek venture capital or go public one day. You want to offer employee stock options. Your business will have many shareholders or a complex ownership structure.
For example, a solo consultant in Austin launching a marketing firm might be perfectly served by an LLC — while a tech startup in Houston planning to raise seed funding might benefit from incorporating as a C-Corp from day one. This is where the role of a business lawyer becomes crucial, as they can evaluate your long-term goals, liability risks, tax considerations, and investment plans to recommend the most strategic structure from the start.
Texas-Specific Considerations
Texas is generally a business-friendly state. There's no state income tax, which makes both LLCs and Corporations attractive here. However, Texas does impose a franchise tax on most business entities, including LLCs and Corporations, so it's worth understanding how that affects your bottom line.
Additionally, Texas law allows for a series LLC — a unique structure that lets you create separate 'cells' within one LLC, each with its own assets and liabilities. This can be useful for real estate investors or businesses with multiple distinct operations.
Don't Skip the Legal Advice
While this overview gives you a solid starting point, choosing the wrong business structure can have long-term legal and financial consequences. Every business is unique, and what works for your neighbor's company might not work for yours.
That's why it's worth consulting with an experienced business attorney before you file anything. Good business lawyers will help you understand the tax implications, draft your operating agreement or corporate bylaws, and make sure your entity is set up properly from day one.
LLC vs. Corporation: Find the Right Structure for Your Business
Both LLCs and Corporations are legitimate, powerful business structures — and Texas offers a welcoming environment for both. The right choice depends on your goals, your industry, and your plans for the future.
Take the time to think through your long-term vision, talk to qualified attorneys at FindTheLawyers and don’t rush the decision. Your business structure is the foundation everything else is built on — it’s worth getting right.
For more guidance, explore the FAQ section for quick answers to the most common LLC vs. corporation questions.