What exactly is double taxation for C-Corps?

Double taxation means C-Corps pay corporate income tax on profits (21% federal rate), then shareholders pay personal income tax again when those profits are distributed as dividends. However, profits kept in the business are only taxed once at the corporate level.

When does a C-Corp actually save money on taxes?

C-Corps can save money when owners leave significant profits in the business (taxed at 21% vs. individual rates up to 37%) or when owner-employees can minimize self-employment taxes by taking reasonable salaries and distributions instead of all compensation as wages.

Can I convert my Texas LLC to a C-Corp later?

Yes, you can convert an LLC to C-Corp, but it may trigger tax consequences. The conversion typically requires dissolving the LLC and forming a new corporation, or in some cases, a statutory conversion. Consult a tax professional before converting.

Why do venture capitalists prefer C-Corps?

VCs prefer C-Corps because they offer familiar legal structures, easier equity distributions, stock option plans for employees, and cleaner exit strategies through acquisitions or IPOs. LLC ownership interests are more complex for institutional investors.

Are there any special C-Corp taxes or fees in Texas?

Texas has no state corporate income tax, but C-Corps may owe the franchise tax if gross receipts exceed $1.23 million annually. The franchise tax rate is 0.375% on gross receipts for most businesses, making Texas relatively business-friendly for corporations.

Which structure should most small businesses choose?

Most small Texas businesses should start as LLCs due to simpler management, pass-through taxation, and flexibility. Only choose C-Corp if you plan to seek venture funding, need complex equity structures, or expect to retain significant profits in the business.

Texas LLC vs C-Corp: Choose the Right Business Structure

Compare formation costs, taxes, and ownership rules to decide between an LLC and C-Corporation for your Texas business in 2026.

By Edmond Hui · Last updated: January 2026

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LLC vs C-Corp: Side-by-Side

Factor	LLC	C-Corp
Formation cost	$300 Texas filing fee + registered agent (~$100/year)	$300 Texas filing fee + registered agent (~$100/year)
Taxation structure	Pass-through taxation (no entity-level tax)	Double taxation (21% corporate + individual rates on distributions)
Ownership limits	Unlimited owners, any type (individuals, corporations, etc.)	Unlimited shareholders, but restrictions for S-Corp election
Self-employment / payroll tax	Members pay self-employment tax on all profits (15.3%)	Owner-employees pay payroll taxes only on salary, not distributions
Investor appeal	Limited appeal to VCs and institutional investors	Preferred by venture capital and institutional investors
State taxes in Texas	No state income tax; potential Texas franchise tax if revenue exceeds $1.23M	No state income tax; subject to Texas franchise tax based on revenue/gross receipts
Administrative complexity	Simple management structure, minimal formalities required	Board of directors, shareholder meetings, corporate resolutions required
Profit distribution	Flexible profit allocation regardless of ownership percentage	Distributions must be proportional to share ownership

When an LLC Makes More Sense

You want simple management with minimal paperwork and formalities
Your business has few owners who are actively involved in operations
You prefer flexible profit sharing that doesn't match ownership percentages
You don't plan to seek venture capital or go public in the near future

When a C-Corp Makes More Sense

You plan to seek venture capital funding or eventually go public
You want to retain significant earnings in the business for growth
You need employee stock option plans or other equity compensation
You want to minimize self-employment taxes on business profits

Tax Deep Dive

Llc Default Tax

Texas LLCs default to pass-through taxation, meaning business profits flow directly to owners' personal tax returns. Members pay self-employment tax (15.3%) on their share of profits, plus regular income tax rates. Texas has no state income tax, which benefits LLC owners.

C Corp Tax

C-Corporations face double taxation: the company pays 21% federal corporate income tax on profits, then shareholders pay individual income tax on any distributions. However, Texas has no state corporate income tax, only the franchise tax for larger businesses.

When C Corp Wins

C-Corps become tax-advantageous when owners can justify reasonable salaries and leave substantial profits in the business (taxed at only 21% vs. individual rates up to 37%). For Texas businesses planning significant growth or VC funding, the C-Corp structure also provides better access to capital markets and investment opportunities.

Frequently Asked Questions

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