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Question for the Money Doctors

Question submitted on Oct 27, 2011.

Question

If a newly formed single member Texas LLC elects S-Corp tax status, is there an initial $1,000 minimum capital requirement as with a stand alone S-Corp., or is there no minimum capital requirement since it is an LLC even though S-Corp. tax status will be selected?

Answer

I don''t believe there is a minimum capital requirement to establish an LLC in Texas.  This was confirmed with someone at the business filing office of the TX Secretary of State. However, you may want to discuss this (or other start up issues) with an attorney.  Also, depending on the nature of the LLC's business, it is possible that some level of minimum capital is required by a different regulatory entity, i.e. if the business of the LLC is subject to additional industry-specific regulation.

As for the tax status of an LLC, for federal tax purposes an LLC is genarally taxed similar to a partnership, meaning income and expenses flow through to the members (versus being taxed at the LLC level).  As you may know, for a single-member LLC the income/expenses can be reoprted directly on the owner's tax return (Schedule C).  However, an LLC can elect to be taxed as a corporation (generally a "C" corporation).  Your question refers to being taxed as an "S-Corp", which is a little confusing.  I'd be happy to revisit your question if you'd like to clarify how the S-Corp status comes into play with your LLC. 

One last point....if you establish an LLC in Texas be sure to look at the state franchise tax filing requirements (Texas state comptroller's office).

Thanks and I hope that helps.


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