Texas is one of the largest economies in the US due to its economic environment and business-friendly laws. We have covered an In Depth guide on Steps to Forming LLC in Texas- A Step-by-Step, Comprehensive Guide. Be sure to check that out!
On the other hand, Wyoming is often considered for offering anonymity as your identity won’t be listed.
In this Texas vs. Wyoming LLC article, we’ll discuss a comprehensive guideline on how you can open an LLC in either of these states. Furthermore, the comparison guide will help you decide which state you should opt for. So, let’s get right to it!
Texas LLC:
This section will help you understand the formation process, taxation, advantages, and drawbacks of forming a Texas LLC. Let’s get right to it.
Texas’s LLC Formation Process
Follow these steps to form a business entity in Texas without a hitch.
Choosing a Suitable Name
When choosing an LLC name, it’s important to pick a unique name. You can cross-check the Secretary of State website to see if the name of your desire is being used by any other company or not. The fee for each search is $1.
However, you can still use the name if the company allows you to do so. Texas state regulations require you not to put words such as “Attorneys” or “Engineers” in the name if your company isn’t qualified to provide relevant expertise.
Let’s say you’ve come up with a name that’s not in use, but you need some time before filing for the creation of the LLC.
In this case, you need to apply for Reservation or Renewal of Reservation of an Entity Name (Form 501) to reserve that name for 120 days.
Choose a Suitable Agent
You need to designate a qualified agent for opening a Texas LLC. The agent will act as the intermediary between your company and the state of Texas. The agent will be receiving official documents on your behalf.
Filing Articles of Formation
To form an LLC, the owner must submit official documents of formation, also known as Articles of Organization. You need the following for this:
- Name of your business
- Address of the business
- Purpose
- Agent’s contact number
- The contact number of the governing body of the business
The state filing fee is $300. However, if you already have formed another LLC in another state, the fee would be $750. In this case, you have to file an Application for Registration of a Foreign Limited Liability Company.
Receive the Formal Certification
After the articles have been filed, if your application is approved, you’ll receive a certification of formation from Texas State.
If you’ve applied for a non-expedited document, the process will take from 70-72 business days. In case you’ve applied for an expedited document, you’ll get the certification within 12-14 business days.
You’ll need 10-15 days if you’ve applied for it online. So, we recommend applying online instead of via mail. The expedited process via mail will require an additional payment of $25.
Upon receiving the certification, your LLC will be able to obtain an EIN or Employer Identification Number, a business bank account, and a business credit card.
Form an Agreement of Operation
Formation of an operating agreement is not an absolute necessity for forming a Texas LLC. The operating agreement lists all the obligations and rights of the members of the LLC regarding the operation and economic benefits.
The operating agreement can be tailored to suit your business needs. We highly recommend doing this because otherwise, your LLC will have to follow the Texas Limited Liabilities Act.
Get an EIN or Employer Identification Number
Next up, you need your tax ID number, which can be obtained from the Internal Revenue Service (IRS). It’s a nine-digit number, and you can get it for free from the IRS online portal.
Taxation Matters: Understanding Texas’ Tax Structure
Income Tax Implications for Texas LLCs
The state of Texas considers LLCs as pass-through entities, which technically means that income taxation doesn’t apply to the LLCs. The gains and losses are passed down to the members of the LLC, and they have to pay the taxes on individual tax returns.
However, if you’re the only member of the LLC, it’ll be considered a “Proprietorship.” In this case, you’ll have to report your income to the IRS annually.
Sales Tax Considerations
The state of Texas charges a base sales tax of 6.25% on the goods you sell in the state.
Advantages of Forming a Texas LLC
Accessibility to a Large Market
Texas has a thriving business environment to offer that the business can tap into anytime.
Minimal Reporting Obligations
The state of Texas doesn’t require you to undertake formalities such as holding annual meetings, nor do you have to keep details of working hours. This gives you the flexibility and convenience of running the LLC from anywhere.
No Restriction on the Number of Members
You won’t face any restrictions regarding the number of members in your LLC. In the case of an S or C corporation, you either have a restriction or the taxation rates become double. So, forming an LLC is a safer bet.
Challenges and Drawbacks
While there are some amazing advantages to opening a Texas LLC, there are some drawbacks to look out for as well.
Annual Franchise Tax
Apart from the sales tax, Texas state imposes an annual franchise tax as well. However, this is to be paid only if the gross revenue of the company exceeds $1,230,000.
Public Record
Once you form a Texas LLC, not only the information of your LLC but the information of the members and managers of the business will also be recorded publicly.
Wyoming LLC:
In this section, you’ll find the LLC formation process of Wyoming, along with an idea of its tax landscape, advantages, and disadvantages.
Wyoming’s LLC Registration Process
To form an LLC in Wyoming, you need to follow these steps.
Select a Name for Your LLC
Start off by picking a unique name for your business. You can check whether the name you decided on is available on the state’s business entity search engine.
Like Texas, you can reserve the name for your LLC in Wyoming as well. In the case of Wyoming, reserving a name for 120 days will cost you only $60. You’ll need to file an application for reservation in this case.
Get a Registered Agent
Just like any other state in the US, you’re required to have a registered agent by law if you wish to form an LLC. The agent will be accepting official documents on your behalf.
Submit the Required Paperwork
Once you have an agent of your choice, you need to submit the Articles of Organization. You’ll need to submit the name of your LLC, the physical address of the business, as well as the email address of the business.
The fee for out-of-state entities is $150. You can file the documents online, in which case you’ll have to pay the fee with a Visa or Mastercard. In addition to the form, there must be a certificate of good standing and existence, which shouldn’t be older than 60 days.
In case you file the papers via mail, it’ll take up to 15 days for them to be processed. Wyoming doesn’t offer an expedited service. The online filing process is much faster as your business will become active as soon as the filing process is complete.
Create an LLC Operating Agreement
Wyoming doesn’t legally require an operating agreement, but we recommend creating a detailed operating agreement. It will contain details on business operations, distribution of benefits among the members, etc.
Get an EIN or Employer Identification Number
Just like in the case of Texas, you’ll need to obtain an EIN number through the official website of the IRS. However, in case it’s a single-member LLC, you can also use a social security number or SSN. We still recommend getting an EIN, as it can safeguard your personal information.
Taxation Matters: Wyoming’s Tax Landscape
The pass-through taxation applies to LLCs formed in Wyoming, similar to those in Texas. You still have to pay a 4% sales tax in Wyoming, which is comparatively cheaper than Texas.
Advantages of Forming an LLC in Wyoming
Here are some of the unique key benefits of formation you can expect from Wyoming.
Privacy and Asset Protection
You can expect to enjoy great security and privacy by forming an LLC in Wyoming. There are minimal obligations regarding reporting and disclosure.
The ownership details of the LLC will not be on Wyoming public records, so you can maintain anonymity. The same goes for managers or members of the LLC.
Perpetual Duration
Limited liability companies enjoy perpetual life or unlimited duration. So, the business may continue beyond the lifetime of the owner. The membership of the LLC can be gifted, bequeathed to others, or simply sold.
Ability to Raise Capital
As LLCs are considered separate legal entities with a unique tax identification number, they can borrow money, build credit, and even sell equity to raise capital. Making it favorable for investors.
Challenges and Drawbacks
Here are the major drawbacks of forming an LLC in Wyoming that you may consider as dealbreakers.
There are Limitations to Privacy
While your credentials will be kept off the public records, there’s no guarantee of 100% privacy. You’re required to provide your information to the agents, and the Secretary of the State can access your information if need be.
Small Market Size
Unlike Texas, Wyoming has a very small population, which means it also has a small market size. However, the business can leverage online mediums to operate on a larger scale.
Texas vs Wyoming LLC: Choosing the Right State
Still confused about which state to choose? Here are some factors that we recommend you focus on for making a solid decision.
Business Goals and Scope: Tailoring Your Choice
The states in consideration are very different in terms of the business environment. Firstly, you need to check their population and the size of the market. Texas offers a huge market, but Wyoming falls short in this case as it has a low population.
So, naturally, the growth projections of Wyoming are far lower than that of Texas.
However, if you’re planning on conducting your business online, this shouldn’t be a problem. In the case of an online business, you can go for whichever state offers you better perks overall.
Taxation Considerations
Both Texas and Wyoming consider the LLCs as pass-through entities, so you won’t have to worry about paying income taxes in either of them. At the end of the day, the profits or losses will be passed down to the members, and they’ll have to report them in their individual income taxes.
So, what’s important to consider is the sales tax. Here, you can see the sales tax for Texas is 6.5% and can go up to 8.5%. On the other hand, the sales tax in Wyoming is only 4%, so Wyoming takes the win in this aspect.
Legal Protections and Compliance
Both Texas and Wyoming will provide ample asset protection and come with minimal responsibilities regarding reporting and administration.
Privacy Concerns: Balancing Transparency and Anonymity
What sets these states apart is the matter of privacy. If you form a Texas LLC, the information of the members, as well as managers of the LLC, will be visible on the state’s public records.
In Wyoming, the information won’t be public, so it gives you a degree of privacy. That being said, you’re required to provide your information to your agent, which the Secretary of State can access at any given time. So, you aren’t truly anonymous.
Yet, in terms of privacy, Wyoming takes the win.
Conclusion
So, Texas vs. Wyoming LLC, which one should you choose? It depends completely on your business goals. If you’re planning on conducting an online business, you should go to Wyoming. The taxes are more favorable, and you have a degree of privacy here.
On the other hand, if you’re planning on tapping into a large market with a lot of growth potential, Texas should be the call.
Regardless of which state you opt for, you’re legally required to have a registered agent. This is where Rocketwave comes in. Our team of experts will help you make the best choices in your new journey and ensure minimum friction, if any.
So, contact us and get started with the process today!
