Incorporation Lawyers Explain Incorporated Business Structures
Types of Business Structures
Significant progress has been made over the past few decades when it comes to the options available to legal business structures. Corporation and partnership were previously the only two directions a business could take. The Sub Chapter S portion of IRS code imposed several restrictions on corporations, such as limiting the number and type of shareholders they can have. A Limited Liability Company or LLC is the newest type of incorporated business, which offers liability protection for owners as well as a favorable pass through taxation. Limited Liability Company Incorporation and the formation of an LLC provides excellent protection for business owners.
The LLC is a separate legal entity that offers both flexible taxation and liability protection, bridging the gap between corporations and partnerships. Incorporation lawyers may advise you on the best choices to make with regard to your LLC’s flexible taxation status. In an LLC, you can choose your own management structure that allows members to operate the business. You may also choose a standard corporation management structure, known as a “manager managed” structure. The flexibility of an LLC means that it can be run as a basic partnership or a more complex corporate structure similar to a board of directors.
The Incorporation Process
Forming a limited liability company is similar in process to the formation of a standard corporation. You must first draft Articles of Organization, similar to Articles of Incorporation. These documents are very similar, and you file them both with the Secretary of State where you are incorporating. LLC’s offer less operational formalities than formal corporations. All corporations are required to hold shareholder meetings and keep minutes on those meetings on a minimum annual basis. While LLCs aren’t so regimented in some states, the best practices is to also prepare LLC minutes on an annual basis.
Corporations are the oldest of all modern business structures, offering solid liability protection, ease of transferability, simplicity of capital raising, and perpetual duration. After incorporation, your business is a distinct entity, or “person.” This entity is separate from you and others who comprise it. The place where the business was incorporated is usually known as its resident domicile. If the business operates principally in another state, then it has a commercial domicile as well. Corporations have been the favored choice for liability protection for a long time. A corporation that has properly been established and maintained provides maximum liability protection for its owners. Incorporation lawyers may be able to help you analyze whether your corporate structure is in accordance with taxation guidelines. The two major types of corporation are the standard C corporation and the IRS classification S corporation.
The S corporation is a specific tax classification given to the incorporated entity for pass-through taxation. Pass-through taxation means that the S corporation is not taxable, and the income and losses are reported on your personal tax return. An S corporation also limits the number of shareholders allowed, as well as the classes of stock.
There are additional types of corporations, such as Professional Service corporations and Close corporations. Both types are still incorporated structures and begin as C corporations. Close corporations are typically small and have very few shareholders. Some states allow Close corporations to operate with fewer formalities, reducing the maintenance involved with a corporation. Other states require certain classes of professionals, such as doctors, to incorporate a Professional Service corporation. All corporations are responsible for paying taxes on income. Shareholders of a corporation also pay taxes on their income and dividends, which constitutes double taxation. Full Sub Chapter S Election was introduced by the IRS to solve this problem.
Contact Incorporation Lawyers
Filing for status as a corporation has numerous benefits, but the process can often be confusing. Contact the Sutton Law Center today at (775) 824-0300 for more information on forming your Limited Liability Corporation. Incorporation lawyers may be able to facilitate the process of incorporation and help you understand the benefits of each type of corporation.