Resources: Selecting a Business Entity

Resources: Selecting a Business Entity

  Sole
Proprietorship
Partnership pdf LLC pdf S Corporation pdf C Corporation pdf
Limited Liability No. General partner has no limited liability protection. Limited partners have limited liability protection unless provided otherwise. All members have limited liability protection from the LLC's debts, unless provided otherwise.

Some question exists as to whether states that do not have the LLC form will respect the limited liability of members.
All shareholders have limited liability protection unless otherwise provided. All shareholders have limited liability protection unless otherwise provided.
Participation in Management No restrictions. Participation by limited partners generally must be restricted in order to preserve limited liability protection. No restrictions. No restrictions. No restrictions.
Texas Margin Tax No. Yes.*1 Yes. Yes.
Number of Owners One. At least two. [May be taxable as a corporation if it has more than 500 members under the publicly traded partnership rules]. May be taxable as a corporation if it has more than 500 members under the publicly traded partnership rules. No restrictions, but at least two to be considered a partnership for tax purposes. One to 100. No restrictions.
Types of Owners Not Applicable. Any. Any. Ownership is limited to U.S. citizens and residents and to certain U.S. trusts. No corporate or partnership shareholders. Any.
Tax Year Calendar. Generally calendar. Generally calendar. Generally calendar. No restrictions.
Organizational Costs Not Applicable. The filing fee in Texas for a Texas limited partnership is $750. The filing fee in Texas for a Texas LLC is $300. The filing fee in Texas for a Texas corporation is $300. The filing fee in Texas for a Texas corporation is $300.
Deductibility of Losses(Basis for Entity-Level Debt) Generally, no restrictions. A partner may deduct his allocable share of partnership's losses only to the extent of his tax basis in his partnership interest which includes his allocable share of partnership debt. A member may deduct his allocable share of LLC's losses only to the extent of his tax basis in his LLC interest which includes his allocable share of LLC debt. A shareholder may deduct his allocable share of corporation's losses only to the extent of his tax basis in his stock which does not include any portion of the corporation's debt. Shareholders may not deduct any of the corporation's losses.


1. A general partnership consisting only of natural persons does not pay margin tax.

The secretary of state has created a guide for determining permissible entity types (PDF, 70kb). Please note however, that the guide is not a substitute for the advice of a private attorney and is subject to change without notice.