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There are a number of reasons why small business owners decide to form an LLC or corporation.

  • To safeguard personal assets against creditors and lawsuits. Without a Corporation or LLC, owners' personal assets (houses, cars, bank accounts, etc.) are at risk of being seized any time the company is sued.

  • Health insurance and other fringe benefits. Corporations and LLCs typically gain the ability to deduct the cost of health insurance and/or other fringe benefits.

  • No limits on corporate losses. There are no limits on the amount of losses a corporation may carry forward to subsequent tax years.

  • Ease in raising capital. Capital from investors can be raised easily through the sale of membership interests or corporate stock.

  • Continuous existence. A Corporation or LLC is capable of continuing indefinitely. Existence is not affected by the death of member(s)/manager(s), shareholder(s), director(s), or officer(s).

  • Establish credit history. Regardless of your personal credit score, you can build a separate credit history for your Corporation or LLC simply by applying for and using company credit.

Advantages specific to Nevada Corporations and LLCs:

  • Ownership in a Nevada LLC or corporation is private and easily transferable. The State of Nevada does not record owners' names, and there is no requirement to file or record the transfer of ownership

  • Nevada imposes no income tax on either LLCs or corporations.

  • Nevada imposes no franchise tax, and minimal annual report fees.

  • Nevada imposes a low franchise tax for small companies.

  • Nevada imposes no tax on capital stock or assets.

  • There are no Nevada capital shares or stock transfer taxes.

  • There is no state inheritance tax on stock held by non-residents of Nevada.



Compare LLCs and Corporations

 
LLC Corporation S- Corporation
Operational Requirements
Some formal requirements, but less formal than corporations.
Board of directors, annual meetings, and annual reporting are required.
Board of directors, annual meetings, and annual reporting are required.
Management
Members have an operating agreement that outlines management.
Managed by the directors, who are elected by the shareholders.
Managed by the directors, who are elected by the shareholders.
Taxation
If properly structured, there is no tax at the entity level. Income/loss is passed through to the members.
Taxed at the entity level. If dividends are distributed to shareholders, dividends are also taxed at the individual level.
No tax at the entity level. Income/loss is passed through to the shareholders.
Pass Through Income/Loss
Yes
No
Yes

Double Taxation

No
Yes, if income is distributed to shareholders in the form of dividends.
No
Cost of Creation
$89 plus state fees
$89 plus state fees
$89 plus S corporation election add-on ($25)
Raising Capital
Possible to sell interests, though subject to operating restrictions.
Shares of stock are sold to raise capital.
Shares of stock are sold to raise capital.

Transferability
of Interest

Possibly depending on restrictions outlined in the operation agreement.
Shares of stock are easily transferred.
Yes, but must observe IRS regulations on who can own stock.

 
 

What are limited liability companies (LLCs)?

LLCs are essentially considered a combination of a corporation and a partnership, and have become increasingly popular in recent years. Similar to a corporation, an LLC has a legal existence separate from its owner(s), and the owners or member(s)/manager(s) are not personally liable for the company's debts and obligations. Like a partnership or an S corporation, an LLC is automatically treated as a pass through entity for tax purposes. Your LLC does not pay taxes; the LLC's income passes through to you personally and you are taxed on an individual basis. Key elements of a Nevada LLC include:

  • Personal liability is limited for owner(s) to the amount of their investment in the company, similar to a corporation.

  • A single-member Nevada LLC is automatically disregarded as an entity separate from its owners and includes all of its income and expenses on the owners' 1040 tax return.

  • A Nevada LLC with two or more members is treated as a partnership.

  • There is unmatched contractual flexibility with a Nevada LLC. Nevada law provides rules on matters where the members have failed to agre

The management of an LLC is based on an agreement between its owners, referred to as members.  LLCs allow a customized management structure. The LLC statute allows parties to define their business relationship in the written agreement however they wish. This is called "freedom of contract." State law provides rules only for those matters on which the parties have failed to agree. The contractual flexibility offered by an LLC is unmatched by any other statute. For example, unlike a corporation, an LLC can distribute profits in any manner described in the LLC agreement, regardless of ownership share.


 

What are corporations?

               A regular corporation, often referred to as a C corporation, pays taxes directly to the IRS. Key elements of a corporation include:

  • The personal liability of owner(s) is limited to the amount of their investment in the company.

  • No limit to the number or type of shareholders.

  • Three tiers of power: shareholders, directors, and officers, all of which can be the same person.

  • Shareholders own the company and elect the directors.

  • Directors elect the officers.

  • Officers manage the day-to-day operations.

  • Minority shareholders are not responsible for the company.

  • May operate based on a fiscal year, rather than a calendar year, as designated by the board of directors.

  • Nevada requires no disclosure of corporate owners.

  • Profits are taxed at corporate rates on an 1120 return, separate from the individual return.

  • Profits are not automatically distributed to shareholders and can be kept as retained earnings.

  • May deduct cost of fringe benefits to owner-employees.

  • S corporation status can be elected if all qualifications are met.

One of the possible drawbacks of a regular corporation is that distribution of earnings as profits to shareholders are taxed twice-once at the corporate level, and again at the individual shareholder level if a dividend is declared. One way shareholders may be able to avoid double taxation is by filing for S corporation status. An S corporation is simply a corporation that has filed an election with the IRS allowing profits of the corporation to pass through to the individual shareholders. Therefore, these profits are taxed only once. 

Keep in mind that you have up to 75 days after your corporation is formed to decide whether to make your corporation an S corporation for that year. The key elements of an S corporation are:

  • The personal liability of owner(s) is limited to the amount of their investment in the company.

  • Avoids double taxation, similar to an LLC.

  • Profits and losses pass through to the individual 1040 tax return.

  • Restricted to 100 shareholders or less.

  • Shareholders must be US residents.

  • Shareholders and directors must be individuals, not business entities.

  • Operates on a calendar year, meaning the corporations books close on December 31.

Corporations have three tiers of power, the shareholder(s), director(s) and officer(s). Each of these groups has different rights. NOTE: If you are a one-person corporation, you will be the sole shareholder, director, and officer, fulfilling all three of the following roles:

  • Shareholders own the company, but don't necessarily manage the company.

  • The directors take responsibility for the overall management of the company.

  • The officers work for the board of directors and handle the day-to-day operations of the company.


What is a Registered Agent?

LLCs and corporations are required to appoint a registered agent located at a street address (post office boxes are not acceptable) during normal business hours. The registered agent is responsible for receiving important legal and tax documents on behalf of the company including Service of Process (notice of litigation), franchise tax forms and annual report forms. The registered agent's name and address are included on the formation documents, and as a result, this information is a matter of public record. There are a number of practical reasons for using a professional registered agent provider:

  • No physical location in your state of formation. You are legally required to have a registered agent with a physical address (no post office boxes) in the state of formation. Using a professional registered agent provider enables you to satisfy this requirement.

  • Company transacts business in several states. When you qualify your company to transact business in states other than your state of formation, you need a registered agent in each of those states. By using a registered agent service provider, one company is handling this important function in each state, allowing you to concentrate on your business. 

  • Address changes frequently. It is important to keep the registered agent address updated with the state. Changing the address requires a formal state filing and also requires that a fee be paid to the state. Using a registered agent service provider ensures you will never have to worry about making the change with the state; you will only need to update your registered agent with your new address.

  • Business is home-based. As previously mentioned, the registered agent address is a matter of public record. That means anyone, including marketers, can access the address. It is not uncommon for the registered agent to receive junk mail on behalf of the business. Using a registered agent provider can reduce the amount of unsolicited mail your business receives. 

  • Ensure business privacy. Service of Process is often delivered by local law enforcement. Most business owners do not want customers, employees or neighbors (as in the case of home-based businesses) to witness law enforcement serving them a lawsuit. Using a professional registered agent ensures you receive Service of Process discreetly.

  • Lack of normal business hours or permanent worksite. The registered agent for a business must be available during normal business hours to accept important documents as they are delivered. If you set your own hours or your business requires you to move around frequently (for example, an electrician who is making service calls all day), you may wish to consider using a professional provider. The registered agent service provider ensures that you never miss these important communications and that these documents reach you and your business.

  • Informs you of key compliance issues related to your company. A professional registered agent service provider is an excellent way to ensure your LLC or corporation is aware of any upcoming compliance events that may affect your company's standing with the state.

 

Foreign Qualification:

When you foreign qualify to do business in a state this means that you are taking the legal steps to notify a State other than the home State of Incorporation, that you are there operating in that State and that you would like to maintain a legal entity status there.

Why is it important to Foreign Qualify?

When you form a legal business entity it is generally with the intention of separating yourself from the business of which you operate and/or have financial interest in. When you foreign qualify you are asking a State for permission to conduct business within their borders, but more importantly you are requesting that that State recognize the legal business entity separate from the individuals who are operating and/or have financial interest in it. When a business entity be it a Corporation, Limited Liability Company, Partnership or other entity type operates within a State that has not legally approved it to operate within their borders then if for any reason legal matters should arise in that State, that State can make the decision to not recognize the legal entity and instead hold the operating person or persons along with the persons who hold financial interest personally liable for those legal proceedings as if it was a Sole Proprietorship.

Take the test: Do you need to Foreign Qualify your business?

Ask the below 6 questions, if the answer is “yes” to any of the below questions, you need to file a foreign qualification:

  1. Will the Entity be Building Separate Business Credit from that of the Principle(s)?

  2. Will the legal entity hire and maintain any W2 Employees?

  3. Will the legal entity be required to hold special licensing? (i.e. Mortgage, Real Estate, or Contractors License)

  4. Will the legal entity hold any real property? (i.e. rental property, personal property, or commercial property)

  5. Will the legal entity have a brick and mortar location or a physical address in your state? (Credit Building Req.)

  6. Will the legal entity be shipping any product from within the State?

If the answer to any of the above is "yes", don’t try to manipulate the question and answer to "no". There is a high risk involved in doing so. Many legal entities make the mistake of trying to find a way out of having to file to do business in states that have high taxes for the purpose of evading taxes. If you do this, you put your employees, business and reputation in that state at risk. You become a constant target for the state to make sure that the entity is always in compliance. The cost and headaches involved in dealing with the state are far less if the entity is honest and follows the correct steps to being in legal compliance than to have to do so because it was caught doing business without the legal authority.

What is involved in Foreign Qualifying your business?

Each state varies in its request of documents. Most commonly states will have a specific form they will request be completed for whichever entity type is qualifying and they will request a copy of the original formation paperwork along with a certificate of good standing. Foreign qualifying can be time consuming and a massive headache if you are not familiar with what each state’s requirements are (and they are ALL different). This is why CorpComply has created a quick and easy solution, and that’s to let us, the experts, do it for you.

**For "Shelf", Nevada Corps, or any Corporation or LLC not domestic to your State and  for purposes of Corporate Credit Building you MUST qualify in your state.

 

Questions? Please contact our customer service team Monday - Friday, 8:00 AM - 5:00 pm PST at 1-949-612-2710 or e-mail support at support@corpcomply.com or simply get started with everything you need to get incorporated, click below to begin...

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