When starting a new business there are several things one needs to consider. Among those things is how do you want to set up your business. Some people prefer to be a sole proprietor and others may look in to setting up a Limited Liability Company or a full-on corporation.
A Sole Proprietor is one of the easiest to set up businesses and has very little startup costs. One of the biggest draw backs to a Sole Proprietor is there is not protection of your personal assets should you get sued.
Many people who are only a one man shop and they do not intend to grow or bring on any co-owners, they form a Limited Liability Company (LLC). They are considered a separate, distinct, legal entity like a corporation. LLC’s were first enacted in 1977 in the state of Wyoming. Other states followed suit, however, LLC’s were not recognized until 1988 when the Internal Revenue Service ruled on their tax status. Today, there are more LLC’s formed than corporations each year.
You can form an LLC in your home state, however, there are definitely advantages to forming your LLC in Nevada. Nevada does not share information with the IRS, nor do they keep records on file. There is no income tax in the state of Nevada as well. Unlike Corporations, LLC’s do not pay a separate tax. They income from the LLC is declared on personal taxes.
A C Corporation has perpetual existence and is taxed as its own entity. They have to file their taxes quarterly with the Internal Revenue Service. Salaries paid are considered a deductible as they are a legitimate business expense. Shareholders may pay taxes on their dividends. A benefit is the corporate tax rate is lower than personal income tax in many instances.
A C Corporation is a great corporation to choose if there are going to be many stockholders or if they want to trade publicly. There are some requirements that must be met. A C Corporation should have by-laws written up and have at least two meeting annually. One meeting can be with the shareholders and the other can be with the board of directors.
The S Corporations is must meet certain requirements of the Internal Revenue Code under Subchapter S. Unlike a C Corporation, if there is a loss of revenue, the shareholders can claim that on their personal income tax. Like a C Corporation, an S Corporation can pay the shareholders salaries.
One of the best things with an S Corporation is even if the shareholders both contributed fifty percent of the capital, they can allocate the income separately. For example, one shareholder works full-time in the business and the other shareholder only works part-time, they can pay the income on say an eighty percent to the full-timer and twenty percent to the part-timer.
Nevada Discount Registered Agent, Inc. has been helping businesses all over the United States to incorporate in Nevada. Having an LLC, C Corporation or S Corporation is a great way to protect your personal assets. Also, incorporating in Nevada means if there is a lawsuit brought against you, it has to be litigated in the state of Nevada. This can be costly, and many times lawyers don’t think it is worth their time to pursue a case.
This information is for general purposes only. If you choose to incorporate your company, please talk with your Enrolled Agent, Certified Public Accountant or lawyer as to what is the best option for you.