LLC Formation
Nevada Corporation
Company Formation
Incorporating in Nevada
Registered Agent
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Nevada LLC - Nevada Corporations
Advantages & Tax Strategies
President of my own Nevada corporation! Who me? Sure, and why not? You have already put in more than your share of 18-hour workdays. As a serious entrepreneur, you have dedicated a substantial part of your life--and your assets--to making your business a success. Why shouldn't you take advantage of some of the strategies which have helped AT&T, IBM and Microsoft to reach their lofty heights.
Incorporate in Nevada & Increase Your Profits
Wouldn't it be great if your suppliers and service providers were really and truly as interested as you are in making your business a world-class success? Of course a good business relationship ideally should be a "win-win" situation, but real life is not always ideal. It is a fact of life that in most business deals each of the parties maneuvers to gain a favorable position for his interests. For example, your vendors want to sell their products to you at the highest price they can get, consistent with repeat sales; you want to pay the lowest price consistent with quality and service--in this regard, your respective goals are opposed to each other. Your Nevada Corp, as a separate legal entity in the eyes of the law, exists separate and apart from any individual, but it has the power to do many things that people can do. Since your corporation is under your control, it naturally shares your basic goals and core values, and as such is a valuable "business associate". Your Nevada corporation wants you to succeed and grow with the same tenacity and zeal that you do.
Asset Protection Through a Nevada Company
As a sole proprietor or general partner you are personally liable for the debts of your business. That could be devastating in the event of some unforeseen disaster which is not covered by insurance. Your liability for the debts of your corporation is generally limited to your investment in the corporation. Other strategies exist which can substantially protect your corporate investment as well.
Nevada Corporation Tax Strategies
If your business is incorporated in Nevada, which has no corporate income tax, then you can avoid (a perfectly legal act) all or a portion of your state's income tax. Nevada also has no personal income, estate or franchise taxes.
Forms of Business Organization
In the United States there have been traditionally three forms of business organizations:
Each of these forms of business organization, as well as some of their refined variants, has its own characteristics with regard to management, liabilities, and taxes; each organizational form is discussed in terms of these important parameters.
A newer form of business organization, which is becoming popular in all states, is the Limited Liability Company (LLC).
Sole Proprietor In a sole proprietorship, the owner is the business. As the sole owner, the sole proprietor has unrestricted freedom in the management of the business. The sole proprietorship exists only for the duration of the sole proprietor's life.
The sole proprietor owns and controls all of the business assets, and he or she is personally and individually liable for all the debts of the business. If the business requires additional capital to fund its growth or expansion, the sole proprietor must arrange the funding through personal assets, or by borrowing the money, possibly pledging the business assets as collateral.
The sole proprietorship business itself is not liable for income taxes; the sole proprietor/owner must account for any profits or losses of the business on his or her personal tax returns.
Partnership A partnership exists where two or more persons carry on a business for profit as co-owners. Management is typically shared between, or among, the partners, giving rise to a more complex management situation. Each partner has implied authority to bind the partnership. While a formal partnership agreement is not necessary to the existence of a partnership, common sense and good business practice indicate that a detailed, and often complex, partnership agreement be drafted. The partnership continues only so long as specified in the partnership agreement, or until the death, bankruptcy, withdrawal or expulsion of a partner.
To raise new capital, partnerships must obtain a loan, new partners, contributions by current partners or restructuring of the partnership. Each partner bears unlimited personal liability for the debts of the partnership.
The partnership itself is not taxed. It is a conduit through which income and other items pass directly to the partners, who report their distributive shares on their personal income tax returns. The partnership must file a federal Form 1065 to report its profit or loss.
Limited Partnerships A special kind of partnership, the limited partnership, offers the principal advantages of a general partnership plus the advantages of limited liability for the limited partners. The limited partnership consists of (1) one or more general partners who have unlimited liability for all obligations incurred by the partnership; and (2) one or more limited partners whose liability is limited to the extent of their capital contributions. To retain their limited liability, the limited partners must not take part in the management of the business and must not allow his or her surname to be used in the partnership name. Also, a limited partner will be liable for damages which result from claims in the partnership certificate which the limited partner knows to be false.
Corporation The corporation is a creation of the state. It exists by virtue of compliance with applicable statutes of the particular state in which the business is incorporated. The corporation has the following four specific characteristics:
- Continuity of Life. A corporation is a legal entity separate and apart from its
shareholders, directors, and officers. Shareholders (or stockholders) are the owners of
the company; it is they who provide the funding to create, sustain, and grow the
corporation. The directors are designated by the shareholders to provide the overall
direction of the corporation. Typically, the "board of directors" sets overall
corporate policy and philosophy. Officers of the corporation, usually but not always,
consist of a president, one or more vice-presidents, a secretary and a treasurer. The
officers are responsible for the day-to-day operation of the corporation. The corporation
continues to exist, irrespective of the status of any person, so long as it continues to
comply with the state corporation statutes. The corporation continues to "live"
despite the death, insanity, bankruptcy, retirement, resignation, expulsion or dissolution
of any shareholder, director or officer.
- Centralization of Management. Management of the corporation is by its elected or
appointed officers under the general guidance of the board of directors. Unlike the sole
proprietorship or general partnership, where management is by the proprietor or by all of
the partners, corporate management is consolidated in a representative person or group.
The limited partnership is akin to the corporation in that its management is consolidated,
or centralized, in the general partner(s).
- Limited Liability. Limitation of liability is one of the main reasons for using the
corporate form of business organization. The liability of the shareholders, directors and
officers for the debts of the corporation is limited to the amount of their investment in
the corporation. Contrast this with the liability of the sole proprietor or general
partner where the individuals themselves bear unlimited exposure to claims against the
business.
- Free Transferability of Interests. Free transferability of assets is illustrated every business day on the several stock exchanges and over-the-counter markets. In general, a shareholder of corporate stock can sell to any other entity willing to meet his price. The buyer can be a person, corporation, trust, partnership, pension plan, non-U.S. citizen, non-resident alien and others. Since shares of stock in the corporation are securities, sales must comply with applicable securities laws. Also, where there is a shareholder agreement, transfers of shares must comply with that agreement; an example is an S-corporation agreement prohibiting sales which would terminate the corporation's S status (such as a non-resident alien).
Many small business owners probably consider incorporating for the tax benefits. Other factors might well be more important for your small business. Such factors include income splitting, fringe benefits, and dividends from other corporations. A discussion of these items is contained in Intuit's "Tips for Small Business."
LLC The limited liability company (LLC) is not a partnership or a corporation. It is really a hybrid between the partnership and the corporation. It is a distinct entity created by state statute that offers business an alternative to partnerships and corporations by combining the corporate advantage of limited liability with the pass-through tax advantage of a partnership. The structure of the Nevada LLC is extremely flexible, and is a matter of contract among its members. The LLC is similar to (1) a general partnership with limited liability; (2) a limited partnership where all owners participate in management and all have limited liability; and (3) an S corporation without the ownership and tax restrictions. Because of the limited liability feature and the formality involved in its formation, an LLC is more nearly related to a corporation than a partnership.
One owner/member LLCs are generally treated the same as sole proprietorships. Profits are reported on Schedule C as part of your individual 1040 tax return. Self-employment taxes on LLC net income/loss must be paid just as you would with any self-employment business.
Multiple owner/member LLCs are treated as a partnership by the IRS. 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.
Please note that as with a sole proprietorship, all profits of the LLC may be taxed to the owners, even if they are not actually distributed by the LLC.
There is a possible third tax treatment that an LLC may elect if the members 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. Because the corporate income tax rates for the first $75,000 of corporate taxable income are sometimes lower than the individual income tax rates that apply to the taxable income of non-corporate taxpayers, it is possible a net income tax savings can result from this tax election.
The state income tax treatment, if any, of LLC profits typically mirrors the IRS tax treatment as discussed above. Some states have different rules and for specific information on your state rules visit your state's web site.
Nevada Corporation
Nevada - Your Corporate Haven. Where should you incorporate your existing or new business? Clearly, you will want to set up your corporation where it will give you the greatest financial reward for the expenditure of time and money involved. For many years, Delaware was considered the "corporate capitol" of the United States. However, Nevada has aggressively moved to offer even greater benefits and has clearly become the "corporate king". 2005 was a record year for the number of new businesses incorporated in Nevada; Secretary of State Dean Heller attributed the increase to Nevada's non-disclosure of shareholder names. In 2005 there were 78,728 new entity filings which is a growth rate of 23% over the prior year. As of June 2005 more than 260,000 business entities were on file and in current standing with the Secretary of State's office. Following is a brief comparison of the two friendliest corporation states:
The following chart shows the incredible growth of Nevada from FY 1998 through FY 2005
Why Incorporate in Nevada vs Delaware
| Nevada has: | Delaware has: |
| No Franchise Tax | Franchise Tax |
| No State Corporation Tax | State Corporation Tax |
| No Tax Reports or Shareholder Disclosure | Tax Reports or Shareholder Disclosure |
| No Information Sharing with IRS. | Information Sharing with IRS. |
Other advantages of incorporating in Nevada are:
Forming Your Nevada Corporation. Nevada wants your business. While the statutes are explicit as to the requirements for forming a corporation, they are reasonable and not unduly burdensome. However, it is essential that these requirements be exactly and precisely complied with.
Among these requirements is that your Nevada corporation must have an authorized "registered agent" and a "registered office" in the State of Nevada where process may be served upon the corporation. Resident Agents of Nevada, Inc. is located in Carson City, the capitol city of the State of Nevada, and we have the knowledge and experience to assist you in forming your corporation with minimum time, trouble and expense. We are in the capitol complex almost every business day and know our way around. We can have your corporate charter on its way to you in as little as 24 hours (expedited basis).
Complete text of Nevada Law The complete text of the Nevada corporate statutes is found there. Look under "Business Organizations" for a file called "Nevada Private Corporations Law". This is a zip file containing NRS 78, "Nevada Private Corporations".
It is important that your Nevada corporation not only exists and remains in good standing, but also that it is in reality a legitimate and active business. Your corporation must be operated in such a manner that it is clearly a separate entity and not merely an incorporated personal pocketbook. You will probably want to establish a business checking account with a local bank and obtain a business license to conduct business in Carson City. Resident Agents of Nevada, Inc. can help you with these important tasks to get your business up and running in minimum time.
Your distinctive corporate seal, stock certificates, stock ledger and minutes book can be obtained through Resident Agents of Nevada, Inc. at very reasonable cost.
Operating Your Nevada Corporation. Your Nevada corporation can be operated and managed from anywhere in the world. As long as your corporation complies with the applicable Nevada statutes it will continue to exist and to provide you with the opportunity to gain the business advantages you seek. Your Nevada office can be the office of your registered agent; we can set up your own telephone with voice mail that you can access 24 hours a day. Resident Agents of Nevada, Inc. can receive and forward correspondence, and will assist with the required annual filing with the Secretary of State. We will help you in every possible way to set up the ideal arrangement for your business requirements.
FYI Definitions of Transacting Business in California. California law says that a foreign corporation shall not be considered to be transacting business in California because its subsidiary transacts intrastate business. Transacting business in California means entering into repeated and successive transaction of the entity's business in California other than interstate or foreign commerce. Without excluding other activities which may constitute transacting business, a foreign corporation shall not be considered to be transacting business solely by reason of carrying on in any one or more of the following activities:
- Maintaining or defending any action or suit or administrative action
- Holding meetings of its board or shareholders or carrying out other activities concerning its internal affairs
- Maintaining bank accounts
- Maintaining offices or agencies for the transfer, exchange or registration of its securities
- Effecting sales through independent contractors
- Soliciting or procuring orders either by mail or through employees or agents or otherwise where such orders require acceptance without the State of California before becoming binding contracts
- Creating evidences of debt or mortgages on real or personal property
- Conducting an isolated transaction completed within a period of 180 days and not in the course of a number of repeated transactions of like nature.