Which business entity should I choose?
The team at Your Nevada Corporate Solutions has in-depth knowledge that can help you to understand the complex range of business entities available and their implications. Forming a corporation or a limited liability company (LLC) will not only help you to become really tax efficient, it will provide financial protection separating your liability for corporate debts from your personal assets.
– Easy to set up and maintain, this business model is the primary choice when small businesses are set up by an individual. Unfortunately, many business owners get stuck in this mode despite the fact that there are many downsides to the approach. Apart from the obvious lack of credibility compared to having an “Inc.” or “LLC” appended to the business name, there is no distinction between the business and its owner. Danger! This means that business liabilities and personal liabilities are one and the same. If the worst should happen, not only is your business at risk but your personal assets – even your home – can be forfeited. From the tax perspective, whilst limited deductions are available to the sole proprietor, it is the business model most scrutinized by the IRS. In fact, you are 80% more likely to be audited as a sole proprietor.
– Very similar to a sole proprietorship, this is an entity formed by two or more people with a legally drafted partnership agreement. Again, the ease of set-up and maintenance sometimes clouds the issues outlined above. The same dangers are inherent with this entity type. As you have unlimited liability for everything you do, your business does as your partners do.
– By contrast, a corporation is a legal entity that separates the owner(s) from the business and thus avoids any personal liability for corporate debts. This entity has all the characteristics of a person; it can enter into legal contracts and buy and own real estate, for example. In this scenario, should the worst happen, the ‘person’ that is sued is the corporation. The corporation bestows prestige, provides personal asset protection and can raise capital through sale of stock.
– This entity combines the attributes of a corporation and a partnership. It is, in many situations, the perfect entity for a new business because losses can pass through to the owner as well as having some other positive tax implications. This makes the S-corporation ideal for small businesses as it provides the same prestige and asset protection benefits as the C-corporation without the possibility of ‘double taxation’. Once again, this entity is somewhat more complicated to set up and involves certain rules to which businesses must adhere. Its shareholder regulations are rather more complex than the C-corporation.
Limited Liability Company (LLC)
– This hybrid entity combines the asset protection of a corporation and the ‘passed-through’ tax arrangement with easy management and limited compliance requirements. Additionally, the IRS code allows owners to be treated in a number of different ways for tax purposes. No wonder this entity type is so popular with small businesses that also get to create an air of professionalism by putting the prestigious LLC behind their business name.
Limited Liability Limited Partnership (LLLP)
– This comparatively new entity provides indemnification for the general partner, removing the unlimited liability that the general partner has in limited partnership law. The LLLP election is available for either new or existing partnerships registered in Nevada. There is a higher registration fee and a higher filing fee. Every limited partnership in Nevada should consider seriously filing as an LLLP.
All these different entities carry with them specific implications for tax and asset protection that should be considered carefully before deciding how to structure a company. Every circumstance is different – one size certainly does not fit all!