• Why Forming an LLC in Texas is Better Than Delaware for Small, Privately Held Businesses
  • 1. Lower Costs
  • 2. Simpler Compliance
  • 3. Local Presence
  • 4. Taxation
  • 5. No Need for Delaware-Specific Advantages
  • 6. Ease of Management
  • Conclusion:

Why Forming an LLC in Texas is Better Than Delaware for Small, Privately Held Businesses

For a small LLC with a Texas-based member and a Croatian member, forming the LLC in Texas is more advantageous than Delaware due to lower costs, simpler compliance, and no need for Delaware’s corporate legal benefits. Texas offers lower formation and annual fees, no state income tax, and easier management for local operations, while Delaware’s higher fees and complex requirements are unnecessary for a privately held LLC that doesn’t issue shares or raise capital. Texas provides a cost-effective, straightforward solution tailored to your business needs.

Opening an LLC in Texas rather than Delaware can be more advantageous for your specific situation for several reasons:

1. Lower Costs

• Formation Fees: Texas generally has lower initial filing fees compared to Delaware. For example, the filing fee for an LLC in Texas is around $300, while Delaware charges $90 for the formation fee plus a $50 annual franchise tax (though the tax can vary based on the LLC’s structure and income).
• Annual Fees: Texas does not impose a franchise tax on LLCs with annual revenues below a certain threshold (currently $1.23 million for 2023). Delaware, on the other hand, requires an annual franchise tax and a registered agent fee, which can add up over time.

2. Simpler Compliance

• Texas: Texas has relatively straightforward compliance requirements for LLCs. There is no need to file an annual report, and the franchise tax is only applicable if the LLC’s revenue exceeds the no-tax-due threshold.
• Delaware: Delaware requires LLCs to file an annual report and pay a franchise tax, regardless of revenue. This adds to the administrative burden and cost, especially for a small LLC that doesn’t need the specific benefits Delaware offers.

3. Local Presence

• Texas: Since one of the members is a Texas resident, forming the LLC in Texas makes practical sense. The Texas resident can act as the registered agent, saving the cost of hiring a third-party registered agent. Additionally, having the LLC in Texas simplifies local operations, banking, and tax filings.
• Delaware: If you form the LLC in Delaware, you would need to appoint a registered agent in Delaware, which incurs additional costs. Moreover, if the LLC operates primarily in Texas, you would still need to register as a foreign LLC in Texas, leading to dual registration fees and compliance requirements.

4. Taxation

• Texas: Texas does not have a state income tax, which can be beneficial for the US citizen member. While LLCs are typically pass-through entities (income is taxed at the member level), the lack of state income tax in Texas simplifies tax reporting and reduces the overall tax burden.
• Delaware: Delaware does not impose state income tax on LLCs that do not conduct business in the state, but if your LLC operates in Texas, you would still need to comply with Texas tax laws. This could lead to more complex tax filings without any significant benefit.

5. No Need for Delaware-Specific Advantages

• Delaware’s Popularity: Delaware is popular for large corporations due to its well-established corporate law, Court of Chancery, and favorable legal environment for shareholders and directors. However, these advantages are irrelevant for a small LLC with no public shares or complex ownership structures.
• Your LLC’s Needs: Since your LLC is small, privately held, and does not plan to raise capital or issue shares, the benefits of Delaware’s legal system are unnecessary. Texas provides a simpler, more cost-effective environment for your business needs.

6. Ease of Management

• Texas: Managing an LLC in Texas is simpler for a Texas-based member. The Texas Secretary of State’s office is generally easy to work with, and the state’s business laws are straightforward for small businesses.
• Delaware: Managing an LLC in Delaware from Texas (or Croatia) would require dealing with Delaware’s legal and compliance requirements, which can be more cumbersome and less familiar.

Conclusion:

For your LLC, which consists of a Texas resident and a Croatian citizen, and given that you do not need the specific advantages Delaware offers (like a robust legal system for large corporations or public share offerings), Texas is the more practical and cost-effective choice. Texas offers lower fees, simpler compliance, and a more straightforward tax environment, making it a better fit for your small, privately held LLC.