Q. Do I need an attorney to incorporate a business or form a Limited Liability Company (LLC)?

A. No, an attorney is not a legal requirement to incorporate a business or form a LLC. In fact, you can prepare and file the Articles of Organization or Articles of Incorporation yourself. However, Nevada LLC Solutions can also prepare and file these incorporation documents for you and you can save time and money. If you are unsure of what entity would be most beneficial to your business, consult your attorney or accountant.

Q. How do I incorporate a business or form a LLC?

A. After you decide to incorporate a corporation or form a LLC, (limited liability company) (Note: See Questions and Answers below for more information on these types of entities), the required documents (Articles of Incorporation if a corporation and Articles of Organization if a Limited Liability Company) must be filed with the appropriate state governmental entity (usually the Secretary of State) and initial fees must be paid. Nevada LLC Solutions can prepare and file these incorporation documents for you. Our questionnaire to form a corporation online is quick and easy. Just fill in the questions, Nevada LLC Solutions will prepare the corporate Articles of Incorporation or LLC Articles of Organization and file them with the state authority. Nevada LLC Solutions will also prepare the Bylaws if a corporation or Operating Agreement if a limited liability company. After you receive these documents, your LLC or corporation should have an organizational meeting where the incorporation Bylaws or LLC Operating Agreement is adopted, interest or stock /share certificates are distributed, and other preliminary matters are completed. This information should be kept in an incorporation or LLC record book. Our Deluxe Corporate or LLC Kits include information and paperwork to make this process easy and organized.

Q. What should I name my corporation or Limited Liability Company (LLC)?

A. You should carefully select the name of your business to portray the image that you want for your new business. The name that you choose must not be deceptively similar to any existing corporation or LLC in your state. For example, if a company named XYZ, LLC exists in your state, you may not be allowed to name your business XYZ Liability Company or XYZ Inc. When you place your order through Nevada LLC Solutions Filing, we will search the state of your incorporation for name availability. It is possible that the name you select will not be distinguishable; therefore, we ask for a second choice on the order form.* Also, for limited liability company, the name must indicate that the business is a limited liability company, so it must include the words "Limited Liability Company," or the abbreviation LLC, or L.L.C. For corporations, most states require that the name be followed by Corporation, Incorporated, or an abbreviation (i.e. Inc. or Corp.). Also, many states allow Limited or Company or an abbreviation of these words to be used as well.

Corporation Questions

Q. What is a corporation?

A. A corporation is a legal entity that exists separately from its owners. It is an association of shareholder(s) created under the law and considered to be an "artificial person". A business is considered to be a corporation occurs when properly completed Articles of Incorporation (also referred to as a Charter or Certificate of Incorporation in some states) are filed with the proper authority of state (usually the Secretary of State) that the entity seeks to be incorporated in and all required fees are paid. You can have Nevada LLC Solutions form your corporation online by filling out our easy on-line order form.

Q. What are the advantages of incorporating?

A. The main advantage of forming a corporation is the limited liability the corporate entity affords its shareholders. Typically, shareholders are not personally liable for the debts and obligations of the corporation. This means that creditors cannot demand an individual shareholder to pay the debts of the corporation. In contrast, in a partnership or sole proprietorship the owner's personal assets may be used to pay debts of the business. There are also other advantages of incorporating a business:
A corporation's life is not dependent upon the life of its members. A corporation possesses the feature of unlimited or perpetual life. For example, if a shareholder dies or wishes to sell his interest, the corporation will continue to exist and do business. Ownership of a corporation is easily transferable. Capital can be raised more easily than other entities through the sale of stock. A corporation possesses centralized management. Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation.

Q. Tell me about S corporations and C corporations? What are the advantages to S corporations?

A. The most common corporation is known as a "C" corporation or general corporation. A C corporation may have an unlimited number of stockholders. A C Corporation is usually selected by companies than plan to have over 30 stockholders or large public stock offerings. C corporations face "double tax" as they are required to pay income tax on taxable income generated by the corporation and the shareholders pay tax again on distribution of dividends.

A subchapter S corporation is a standard business corporation that has elected a special tax status with the IRS. Electing "S" Corp status is a way to avoid having your corporation treated as a separately taxable entity, rather than having the "double taxation" of a C Corp. The s corporation benefits of this tax treatment is that the corporation is allowed not to be a separately taxable entity. Instead, the income of the corporation is treated like the income of a partnership or sole proprietorship; the income is "passed-through" to the shareholders who report the income or loss generated by the corporation on their individual tax returns. An S corporation is formed by electing Subchapter S status with the IRS. This election is done by preparing and filing federal Form 2553 with the IRS. To be classified as an S corporation, a corporation must make a timely filing of Form 2553 to the IRS. In order to qualify for S corporation status, there must be: 1) less than 75 shareholders, 2) the shareholders must be individuals, estates or certain qualified trusts, who consent in writing to the S corporation election, (3) the shareholders can not be non-resident aliens, and (4) an S corporation can't issue preferred shares of stock with special liquidation, dividend or conversion rights. If you meet these criteria and want to elect Subchapter S corporation status, you can have Nevada LLC Solutions prepare the Form 2553 for you.

Q. What is the organizational structure of a corporation?

A. The organizational structure of a corporation consists of three (3) basic groups: shareholders, directors and officers. A corporation is owned by shareholders; however, they do not directly manage the corporation. Instead, they influence corporate decisions through indirect methods such as electing and removing directors, approving or disapproving amendments to the articles of incorporation and voting on major corporate issues. The board of directors are responsible for managing the affairs of the corporation. The directors typically make only major business decisions affecting the corporation and supervise and appoint the officers. Officers are responsible for the everyday management of the corporation. A shareholder may serve on the board of directors and as an officer.

Q. How many directors are required to form a corporation?

A. In most states only one (1) director is required in order to incorporate, although you are allowed to have more. Some states (AR, CA, HI, LA, ME, MD, MA, MO, NY, OH, UT, VT) use the number of shareholders in the corporation to determine the minimum number of directors. For example, if there are three (3) or more shareholders then the corporation must have three (3) directors. If the corporation has less than three shareholders, then the number of directors may equal the number of shareholders.

Q. What are the disadvantages of incorporating a business?

A. The primary disadvantage of incorporating a business is the "double taxation" where the profits of a corporation are taxed twice: first as income to the corporation, then as income to the shareholder when the profits are distributed in dividends. However, reasonable business expenses, such as salaries are deductions against corporate income, can minimize the "double tax". In addition, the double tax can be eliminated by making an S corporation election by filling out and filing a Form 2253 with the IRS or having Nevada LLC Solutions prepare it for you. Other disadvantages of incorporating a business include:

Complexity and expense of forming a corporation. Extensive record keeping requirements. Operating a corporation across state lines requires the corporation to qualify to do business in the other state.

Limited Liability Company LLC Questions

Q. What is an LLC or limited liability company ? What are the LLC advantages?

A. A limited liability company or LLC is a distinct business entity that offers an alternative to partnerships and corporations by combining the advantages of each:

Many small business owners and entrepreneurs prefer LLC's because: 1) it can have the "pass through" taxation of a sole proprietorship, partnership or S-Corp. This means that earnings of an LLC are taxed only once, and (2) LLC's have limited liability protection like the shareholders of a corporation. The LLC owner's liability is generally limited to the amount of money which the person has invested in the LLC. In a partnership or sole proprietorship, the owners personal assets may be seized to pay the debt of the business) LLC's have additional advantages over corporations:
Like general partnerships, LLC's are generally free to establish any organizational structure agreed on by the members. For example, profit interests may be separated from voting interests. LLC's also afford flexibility in the organization and management or your business.

Foreign investors prefer LLC's because LLC's do not have the ownership restrictions of S Corporations.

Q. How many people are needed to form a limited liability company (LLC)?

A. Currently one (1) state, Massachusetts, requires a limited liability company to have two (2) members. All other states allow a limited liability company to have one (1) or more members. The IRS does allow one member LLC's to qualify for pass-through tax treatment. However, taxation of one (1) person LLC's at the state level may be different and you should check with your state for details.

Q. What is the organizational structure of an LLC?

A. A limited liability company or LLC is owned by its members. They are similar to partners in a partnership or shareholders in a corporation. A member's ownership of an LLC is represented by their "interests," just as partners have "interest" in a partnership and shareholders have stock in a corporation.

Q. How is an LLC managed?

A. An LLC may be managed by either its members (owners) or by selected managers. If the LLC is to managed by its members, it operates much like a partnership where each member has an equal say in the decision making process of the company. If the members choose to have it managed by a manager they can do so. The manager(s) would then be in charge of the affairs of the corporation. Member management is the default rule of state law. This means that if managers are not selected in the Articles of Organization, the members will direct the affairs of the LLC. The LLC operating agreement should also specify how the LLC is managed.

Q. How is an LLC taxed?

A. One (1) owner LLC's are treated the same as sole proprietorships for tax purposes. A member of an LLC will report profits on Schedule C as part of the member's individual 1040 tax return. Self-employment taxes on LLC net income must be paid just as you would with any self-employment business.

Multiple owner LLC's can elect on the SS-4 form to be treated as a partnership by the IRS. (Note: Nevada, L.L.C. can prepare and file the SS-4 form for you). The tax return that the LLC completes and files is IRS Form 1065, Partnership Information Return. On this form, LLC profits are reported and allocated to each of the owners according to the LLC's operating agreement. Each owner is given a Schedule K-1, which shows each owner's share of LLC income or loss. The owner then reports and pays taxes on this income on the owner's annual 1040 income tax return.

There is a possible third tax treatment that an LLC could elect if it does not want pass-through taxation. The LLC may elect to be taxed as a corporation by completing IRS Form 8832 and checking the corporate income tax treatment box. After making this election, the LLC is taxed as a C corporation by the federal government. The reason that this may be attractive is because the corporate income tax rates for the first $75,000 of corporate taxable income are lower than the individual income tax rates that apply to the taxable income of non-corporate taxpayers, making it is possible for a net income tax savings to result by making this tax election.

The state income tax treatment of LLC profits typically mirrors the IRS tax treatment as discussed above. Some states have different rules. For specific information on your state rules visit your state's web site.

Q. What are the disadvantages of an LLC?

A. The disadvantages of a limited liability company (LLC) include:

Documents must be filed at the state level to create an LLC, which is not the case with a general partnership. Note: a corporation and limited partnership requires documents to be filed at the state level also.

Dissolution Date: Some states require that a dissolution date be listed in the Articles of Organization. However, this date may be extended by filing an amendment to the Articles of Organization. Further, certain events, such as death of a member, a member leaving, bankruptcy, etc. can be a dissolution event. These events can be specified in the LLC Operating Agreement or by statue. A corporation has unlimited life and these events are not dissolution events for a corporation.