The type of legal entity you choose to operate your business as is an important decision that can have long range consequences. One of the highest priorities for most business owners is shielding their personal liability. Both a traditional corporation and a limited liability corporation accomplish this goal, but there are other advantages and disadvantages to each.
In Nevada, forming an LLC is a relatively simple process; select a name, file articles of organization and appoint a registered agent are all that is required, although incorporation lawyers typically advise that the preparation of an operating agreement is good practice. A corporation has greater requirements, including;
- Selection of a corporate name
- File articles of incorporation
- File the list of officers
- Appoint a registered agent
- Set up the corporate record books
- Appoint initial corporate directors
Subsequently, the initial board of directors meeting will be held, at which time the initially appointed directors will appoint permanent corporate officers, adopt bylaws and, if desired, authorize the issuance of stock. The minutes of the meeting must be recorded, as well as the minutes of each of the regularly scheduled meetings. An LLC has no requirement to hold meetings.
Corporations are characterized by formal, highly centralized management structures. Authority is vested in a board of directors that is elected by the shareholders. The board in turn appoints the officers who are responsible for the operation of the business. As incorporation lawyers can explain, the laws governing LLCs allow great flexibility in management, but most operate as either member-managed or manager-managed. Member-managed means that each member has the authority and ability to act on behalf of the business. In a manager-managed LLC, typically one member is designated as manager. Alternately, some LLCs are managed by an outside manager.
One of the interesting options a business owner forming an LLC has concerns taxation; an LLC is not taxed as an entity unless it chooses to be taxed as a corporation. Otherwise, taxes flow through the LLC and are reported on the members’ individual returns. LLC members are not employees so no taxes for Social Security and Medicare are withheld from distributions. Where a member is working in the business or managing it, he or she is required to pay these amounts, also called self-employment taxes for business owners, from the distribution. However, incorporation lawyers emphasize that members who are not engaged in the operation of the business do not have to pay these taxes. Corporations pay a tax as an entity. Profits may or may not be distributed to shareholders, but when they are, there is no requirement to by self-employment taxes. An officer, who may also be a shareholder, may be paid a salary, which is subject to tax withholding.
Contact Incorporation Lawyers for Legal Advice
If you are just starting a business or feel your business has grown to such an extent you need greater protection, the most appropriate type of entity is an important consideration. Get the facts and explore your options. Call the Sutton Law Center, an incorporation lawyers group, at (775) 824-0300.