Have you been considering starting your own business and becoming an entrepreneur but you have a few questions that need to be answered? Well, here are a few frequently asked questions our transactional attorneys have encountered from clients about business formations. Please remember, every person’s situation is unique. For direct answers to your specific personal questions, please contact one of our transactional attorneys for assistance.
What is the difference between a limited liability company and a corporation?
While both corporations and limited liability companies provide similar limitations on the personal liability of shareholders and members, there are significant differences in potential tax treatment and management. A limited liability company can be a “disregarded entity”, C Corp, S Corp or partnership for federal tax purposes. A corporation can either be a C Corp or an S Corp. Corporations require annual reports and annual meetings, while limited liability companies have no similar statutory requirement, although it is good housekeeping to do so.
What is the difference between a limited liability company and a corporation tax wise?
A limited liability company has greater flexibility as to tax status. A single member LLC is “disregarded” for federal tax purposes, which means the expenses and revenue are included in the owner’s federal tax return. The most common tax treatment for an LLC is as a partnership. Corporations cannot elect partnership tax treatment. Corporations are limited to being a C Corp that pays federal income tax or an S Corp wherein the shareholders pay tax on their share of profits.
S corporations do not pay federal income taxes, instead, the shareholders pay tax on their share of the income. This single layer of tax liability provides significant savings.
Why should I have a limited liability company or corporation?
The best reason is to limit the exposure of an individual’s assets for business risks. Another reason is to raise capital.
Do I need a business license?
All businesses in Nevada require a state business license and most businesses require one or more local business licenses.
Will my name be in public record if I own a limited liability company or corporation?
Maybe, in Nevada, the identity of the Manager of an LLC and the President, Treasurer, Secretary and Directors of a corporation are public records unless the management is conducted by another incorporated entity or trust.
How do I protect my company name and brand?
Depending on the circumstances, trademark and service mark filings at the federal or state level are generally the tools for protecting a brand. Merely using your brand will not prevent someone from “taking it” for their use.
How much will it cost to maintain my entity?
In Nevada, there are annual filing fees and often costs for a resident agent apart from business license cost. There is also a new gross receipts tax on revenue over $5M where your business operates and how much income is generated, determines cost as well as initial and annual costs for the Nevada Secretary of State.
Are there any restrictions I should be aware of when naming my business product?
The are a range of considerations, including aspects of internet marketing. It is often optimal to procure the url for your brand. It is also vital to do comprehensive searches to avoid selecting a name that cannot be protected or is already being used.
Should my company hire people as employees or independent contractors?
There is often no choice. The IRS has guidelines for determining when a person can properly be classified as an independent contractor. There also practicalities, as independent contractors generally select the time and manner of providing their services which may not work for some businesses. Failure to have the proper classification can be expensive to correct.
Should our initial capitalization be treated as a loan to the entity or the initial contribution?
Generally, it is best to have at least some investment that is equity in order to avoid potential “piercing the corporate veil” arguments and to facilitate obtaining loans from third parties.
Shares in a corporation: What is the minimum amount of shares and what should pricing be?
What is the estimated issuance price? Determining the offering price for shares in a closely held corporation is often a complex analysis. Factors include the size of the anticipated business, the number of potential shareholders, the cost of obtaining Authorized shares from the Secretary of State, annual renewal costs, potential future share issuances and the dollar amount of required capital.