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If you want to start a new business, forming a corporate entity to own and operate that business isn't a bad idea. That being said, determining the right business structure is also important. Typically, most business people form either a limited liability company (LLC) or a corporation (Inc.). What are some of the differences? What are some of the similarities? What are some of the benefits?

The process of incorporating in Nevada entails the creations of certain documents and filing some of those documents with the Nevada Secretary of State. A document referred to as the "Articles of Incorporation" is used for corporations while “Articles of Organization” is used for LLCs. Simultaneously with that initial filing, one must file an "Initial List" identifying who the officers and directors are if you are dealing with a corporation, or who the managers are if you are dealing with a LLC. Thereafter, there are various internal documents each respective entity should also have. When talking about corporations, these documents include such items as Bylaws and/or Shareholder Agreements. When talking about LLCs, such documents may include an Operating Agreement.

Owners of an LLC are called "Members". Those who manage the LLC are called "Managers".
Owners of a corporation are called "Shareholders". The Shareholders elect "Directors" who in turn then elect "Officers". The Board of Directors oversee the main corporate affairs and deal with the major decisions of the corporation, while the Officers manage the day-to-day business affairs. Officers are typically the President, Secretary and Treasurer of the corporation. An owner can wear multiple hats as well. Many single-person owned LLCs are both the Manager and Member. In turn, many single-person owned corporations are the sole Shareholder, Director and Officer.

Generally speaking, Nevada does not restrict who can have an ownership interest in a LLC. Therefore, Members in a LLC may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members limits either. Nevada also permits “single-member” LLCs, those having only one owner.

When a corporation is initially formed, it is by default a C-corporation. The profit of a C-corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. Many small businesses elect to be a S-corporation instead. In order to become an S-corporation, the corporation must submit to the IRS a Form 2553 Election by a Small Business Corporation signed by all the shareholders. This allows S-corporations to avoid double taxation on the corporate income. However, not every corporation can elect to be a S-corporation. To qualify for S corporation status, the corporation must meet the following requirements:
     - Be a domestic corporation,
     - Have only 'allowable' shareholders,
     - Have no more than 100 shareholders, and
     - Have only one class of stock.

So why incorporate with a LLC or corporation to begin with? Well, some advantages are as follows:

     1. Shielding yourself and your personal assets from business liability in the event the business has creditors.
     2. "Charging Order" protections for owners and the entities themselves in Nevada.
     3. Establishing better internal business operational structures to reduce confusion and disputes between owners.
     4. Clarifying proper transfer of ownership parameters and procedures between owners.
     5. Potential tax advantages.
     6. Some lenders require specific entity structures such as single-purpose/single asset entities to be established before they will agree to lend to a business.
     7. Increasing your business credibility to the public.

While you can form a company yourself, the process can become confusing. You want to avoid filing paperwork incorrectly as mistakes can become costly and time-consuming. There is no reason to attempt to do this alone. Let someone at our firm help and guide you through the process.

For more information contact us at office@fdlawlv.com.

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