Corporation vs. LLC

“C” Corporation Limited Liability Company (“LLC”) in Texas
Provide Limited Liability to owners for Business Debt? Yes Yes
Are owners protected from liability for their own personal misconduct? No No
Number of Owners and who owns the entity? Shareholders own the corporation. You may have a single shareholder or multiple shareholders that own an interest in a corporation. LLCs are owned by its members. You may have a single member, or multiple members own an interest in an LLC in Texas.
Transferability of Interest? The interest is freely transferrable unless restricted by the Bylaws, Articles of Formation, or Shareholder Agreement. Only the Membership economic interest is freely transferable, unless restricted by the Company Agreement or Operating Agreement. However, unless the Company Agreement specifically allows it, the status of Member, including all non-economic interests, is not transferable without the consent of all members.
Taxes? Corporations are taxed like a corporation, where the corporation pays taxes at the corporate rate, and then the dividends are also taxed when paid to the shareholder, at the shareholder’s tax rate. This is a double taxation. A corporation may also apply to the IRS for Sub-S status. As an “S” corp., the tax structure is more similar to that of a partnership. LLCs will be taxed like a sole proprietorship or partnership (depending upon if there is more than one member) by default. That means that it will be taxed like a “pass through entity” and the income will be declared on the member’s tax return. However, the LLC can elect to be taxed like a corporation.
Are Franchise Tax/Margin Tax Returns required? Yes Yes. Even if no special tax return needs to be prepared if it is a single member LLC, you are still required to file the Franchise Tax Return, even if you owe no taxes.

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