Texas Subchapter S Corporations

Many Plano Texas entrepreneurs think they need to set up a corporation in order to protect their personal assets. As a practical matter, most really mean a Subchapter S corporation.

What is a Subchapter S corporation? That’s a corporate tax election that lets income pass through the corporation to the shareholders and be taxed once at the federal level (Texas has no state income tax – knock on wood – so an “S” election at the state level isn’t necessary). This contrasts with a Subchapter C corporation where income is taxed twice: once at the corporate level and a second time at the shareholder level.

Rarely does it make sense to take the double hit on taxes if your business can qualify as an S corp instead.

However, Texas business owners should seriously consider using a limited liability company (LLC) instead of an S corporation. In most cases, you get all all of the benefits of an S corp for both asset protection and tax purposes without all of the legalese required to operate a corporation. A properly drafted LLC operating agreement (a contract between the owners of the LLC) can govern how things are run without having endless meetings and related legal paperwork.

Your Plano business attorney can help you select the right type of Texas business entity for your company. Just don’t assume that a corporation is the right way to go.

About the Author

With an advanced international law degree from Georgetown University and more than 14 years of real world legal experience, Attorney Mike Young shows Texas entrepreneurs how to protect and grow their businesses.
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