NEVADA CORPORATIONS

We can help you determine whether a corporation, limited liability company (LLC), partnership, limited partnership (LP), or other type of organization is best suited for your objectives. The various types of business structures are listed below, along with comments on the creation of the business structure, and general notes on issues such as personal liability, joint and several liability, and tax considerations.

Corporation
In order to incorporate, a company must file its Articles of Incorporation with the Nevada Secretary of State. The owners of the corporation are known as shareholders. There must be at least one shareholder for a corporation, and there is generally no limit on the number of shareholders for a corporation, except in the case of a S-corporation. A corporation’s Bylaws are the basic guidelines, along with any pertinent statutes, regarding how the corporation will operate. In addition, quite often a corporation will have a Shareholders’ Agreement which is used to further detail any agreements made by the shareholders, such as issues regarding control, income distributions, manner in which a shareholder can transfer his/her shares, etc.

The affairs of a corporation are generally overseen by a Board of Directors, which is elected by the shareholders of the corporation. The Board of Directors then typically appoints the Officers (i.e. President, Secretary, Treasurer, . . .) of the corporation who are responsible for the day-to-day management of the corporation. Many corporations have one or two persons serve in all of the above capacities, which is allowed under Nevada law.

One potential advantage of using a corporation to operate a business is the possibility of being able to shield the shareholders, Officers and Directors of a corporation from being personally responsible for an obligation or liability of the corporation. However, in regards to most small businesses (including newly formed corporations), the owners, Officers, and/or Directors of the corporation will generally be required to personally guarantee many of the obligations of the corporation, such as company credit cards, automobile lease payments, office rent, etc. Moreover, in some instances, particularly when the corporation fails to properly separate its affairs from the personal affairs of the shareholders, Officers and Directors, the liability shield may be lost.

There are two basic types of corporations. Regardless of which type, the corporation is required to obtain its own taxpayer identification number. A C-corporation is the type of corporation that typically comes to mind when one thinks of a large, publicly traded company (however, a C-corporation does not have to fit this description). The C-corporation is not limited by the number or types of shareholders that it can have. Further, a C-corporation must pay income taxes on its net income before dividends are paid to the shareholders. The shareholders must then also pay income taxes on the dividends that it receives from the C-corporation. This is what is commonly referred to as "double taxation." Lastly, a C-corporation can have more than 1 class of stock (i.e. it can have common and preferred stockholders).

In contrast, an S-corporation is generally thought of a being a small, closely-held corporate entity. A S-corporation is limited to no more than 75 shareholders (spouses only count as 1 shareholder) and there are restrictions on the types of shareholders. Shareholders of a S-corporation must be U.S. citizens and can only be individuals, estates or certain types of trusts (not partnerships or corporations). In addition, a S-corporation can have only one class of stock. The S-corporation must file an information tax return, but does not have to pay any income tax, as all of the taxable profits pass through directly to the respective shareholders. Also, in order to be classified as an S-corporation, a form must be timely filed and approved by the I.R.S.

Limited Liability Company
For more information on LLC's, click here.

Sole Proprietorship
A sole proprietorship is a business venture that is owned by only one person. It requires no formal filing, such as Articles of Incorporation, to create the venture. If the business owner wants a business name that is not the person’s name, they must file the fictitious name with the County Clerk. The venture does not need to obtain a separate taxpayer identification number, but it should if it will have employees. Moreover, the business owner is personally liable for all obligations of the business venture.

Partnership (General)
Like a sole proprietorship, a general partnership requires no formal filing, such as Articles of Incorporation, to create the venture. However, a partnership should, at a minimum, have a good partnership agreement that spells out all of the pertinent details of the partners’ agreement. A partnership requires at least two separate owners, each of whom will be personally liable for the obligations of the partnership’s business as well as the actions of the other partners in regards to partnership activities. The partnership should obtain a separate taxpayer identification number. However, the partnership will not have to pay any income taxes, as the profits and accompanying tax obligations pass through to the respective partners.

Limited Partnership
A limited partnership (LP) is created by filing a Certificate of Limited Partnership with the Nevada Secretary of State. This Certificate must name each initial General Partner. Thereafter, all General Partners of the LP must be named in the annual list that is required to be filed each year with the Secretary of State. In addition to any General Partners, a LP should also have limited partners. Typically, only the General Partner(s) are personally liable for the obligations of the LP.

In general, a limited partner is not liable for the obligations of the LP unless the limited partner is also a General Partner or if the limited partner actively participates in the control of the LP. A limited partner is able to do certain things, such as be an employee of the LP, provide consultation to the General Partner(s), participate in a partnership meeting, or vote on certain restricted items, all without being deemed to have actively participated in the control of the LP.

The LP should have a Partnership Agreement (aka Limited Partnership Agreement) which sets for the obligations and rights of all the partners. The LP has the same tax treatment as the general partnership. A LP can be a useful tool for both asset protection and family estate planning purposes.

Non-Profit Corporation
A non-profit corporation is a corporation formed for a charitable, education, religious, literary or scientific purpose. A non-profit corporation is formed by filing Articles of Incorporation with the Nevada Secretary of State. Usually, the non-profit is managed by a Board of Directors or Trustees. There are no shareholders or owners in the traditional sense, but there may be members who vote in the election of the Board. The non-profit will also need to have a set of Bylaws.

Once the non-profit is formed, it will need to file an application with the I.R.S. to be approved as a "non-profit" corporation. This approval is required in order to have the donations and grants made to the non-profit be tax-deductible for the respective donors. Also, once the approval is granted, the received donations and grants are tax-free provided that such items are used in a proper manner. Keep in mind that non-profits must operate in accordance with federal guidelines.

The decision on which type of entity to recommend depends on the client's specific needs and desires. We review each potential client's circumstance before making a recommendation of which type of entity to select.