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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:
-
Will the legal entity hire and maintain any W2 Employees?
-
Will the legal entity be required to hold special licensing? (i.e. Mortgage, Real Estate, or Contractors License)
-
Will the legal entity hold any real property? (i.e. rental property, personal property, or commercial property)
-
Will the legal entity have a brick and mortar location or a physical address in your state? (Credit Building Req.)
-
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 CCN has created a quick and easy solution, and that is to let us, the experts, do it for you.
**For "Shelf", Nevada Corps, or any Corporation or LLC not domestic to your State, you MUST qualify in your state.
Questions?
Please contact our customer service team Monday -
Friday, 8:00 AM - 5:00 pm PST at 1-888-612-2750 or
e-mail support at
support@corpcomply.com or simply get started with
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