LLC vs. Sole Proprietorship in Texas: Which Is Right for You?

When starting a business in Texas, one of the first decisions you'll make is how to structure it. The two most common options for small businesses are a sole proprietorship and an LLC. Here's how they compare.

Quick Comparison

Sole Proprietorship

A sole proprietorship is the simplest business structure. There's no formal filing — you just start doing business. If you want to operate under a name other than your own, you'll need to file a DBA (assumed name certificate).

The downside: There's no legal separation between you and your business. If your business gets sued or goes into debt, your personal assets (home, car, savings) are at risk.

LLC (Limited Liability Company)

An LLC creates a legal separation between you and your business. Your personal assets are protected from business liabilities. It also gives your business more credibility with banks, clients, and vendors.

The cost: Texas charges a $300 state filing fee for the Certificate of Formation. You'll also want an operating agreement and an EIN.

Which Should You Choose?

Choose a sole proprietorship if: You're testing a business idea, have very low risk, and want zero startup costs.

Choose an LLC if: You're serious about your business, want liability protection, or plan to hire employees, take on clients, or sign contracts.

For most Texas business owners, the $300 filing fee for an LLC is a small price to pay for protecting your personal assets.