Should I be a Stock Held Corporation or a LLC, Limited Liability Corporation?
Stock Held Corporation is either taxed as a C-Corp, 1120 Form or an S-Corp, 1120-S Form.
LLC's, are much more flexible. Not only do they have the added protection of charging order, but they can receive the election of taxation 4 different ways.
LLC's can be taxed as a flow through to an individual or Corporation as a Disregarded Entity (no tax return necessary).
They can be taxed as a Partnership, 1065 Form. (IRS Link)
They can also be taxed as a C-Corp 1120 Form (IRS Link)
Sub Chapter S Form 1120S (IRS Link)
A LLC may be taxed any way you decide is the best tax structure for your purposes. We advise our clients to use an LLC when ever possible.
|Compare Some States with Nevada||NV||NY||NY||TX||DE|
|States laws that Pierce Corporate Veils||FRAUD ONLY||Yes||Yes||Yes||Yes|
|Courts that Protect Corporate Veils||Yes||No||No||No||No |
|CorpNevadaOnline.com processing fees||Fraud Only||Yes||Yes||Yes||No|
|States that hold Officer Personally responsible||No||Yes||Yes||Yes||Yes|
|State laws provide for ease of incorporation through minimal filing requirements||Yes||No||No||No||Yes|
If you are sued in another state and you loose your case. If your assets are held in an LLC in Nevada, a judgment can only be satisfied by attaching a lien on the member's percentage of distribution from the LLC.
The courts of another state can not force a LLC to liquidate your assets held by the LLC in order to satisfy the judgment. They can only put a lien against any distributions you will be taking from that company. Our suggestion would be not to take any distributions.
You may keep owners off tax return. You will need 3 or more Stockholders or Members.
You may take a 100% Deduction on Medical Insurance.
Corporation can own Property (land, car, boats, planes, etc.) and depreciate it or take as full deduction.
Corporation can pay for business trips. Full deduction
$50,000.00 or under on profit is taxed at 15%
Can have a different tax year end. This is important when your managing money and can be a big help at tax time.
We feel this is the best structure to maintain privacy for the owners of a corporation.
The Disadvantages of 1120 Form // C- Corp
Double Taxation: If you are to take money personally you must be paid a salary or 1099. If you pay a dividend then the company must pay taxes as profit and individuals must pay taxes as income.
Profit over $100,000.00 is taxed at 39%
NUMBER ONE RULE IS:
"IF YOU DID NOT WRITE IT DOWN, IT NEVER HAPPENED"
We at CorpNevadaOnline.com prefer our clients to be well informed and educated. With all the different companies seemingly doing the same thing, we think it is important to go into detail on how important the documentation of a company is for its existence.
A corporation is an entity in it's self, the way this entity functions is through documentation. That documentation is the body of the company, the rules. The documentation consists of meetings, resolutions, ect. When deciding how you want your company to run you must elect Officers, Managers, and decide who the members, stock holders, (owners) are going to be, this all happens in the Operating Agreement (LLC), By Laws (Stock Held) and the Minutes of the Meetings. What a lot of incorporators are selling is a Corp Kit, this is a pretty generic set of documents and you fill in the blanks. Which means you are sitting at your desk trying to figure out who's name goes where. A lot of the time this paper work never gets filled out at all.
Last piece in the Incorporating Puzzle
Any time you see Corporation Kit or Corp Kit, this means that there is no strategy in place for your corporation. It means that all the paper work for the company is up to you. In this complicated world do you really want to try this? Do you want it to be handled by professionals? What information are you going to give the Bank, Mortgage Company, or that government agency? What Officers Position is best to use? Do you understand how to best utilize corporate structure to protect yourself? Our all inclusive packages provide that inside tract.
One of the calls we get all the time is from clients that just do not know what to do. Their company is in default, or they just got a notice of back taxes, or something from the city saying that they need to register, or pay some fines.
These Clients have signed up with other incorporators. When they were making up their minds, before they signed up, they heard form that “Really Nice Guy” every day. Now that “Really Nice Guy” won’t return their phone calls. They are confused, they paid in full but their agent won’t return their calls anymore. When they call their incorporators, the pat response is “That was not included in your package.” What we find in this highly competitive industry is that a lot of promises are made but not kept.
At CorpNevadaOnline.com our packages are all inclusive. One of the biggest differences between us and our competitors is that we are looking for the long term relationship. We are building this business to keep our clients. Our strength is in the amount of clients that renew with us year after year. This being our driving force means that we want our clients happy and satisfied year after year. Customer service is very important in building that long term relationship.
A corporation is a Legal Entity, when you form a Corporation you are giving birth to a legal and separate entity. This legal and separate entity does not have any opinions nor thoughts of it's own. Further, a corporation is a distinct legal entity, separate and apart from its members, stockholders, directors or officers. Although it is a separate entity, it can act only through its members, officers or agents and cannot have knowledge or belief of any subject independent of the knowledge or belief of its people.
A corporation functions through it’s officers. Stockholders and members of a Corporation do not run a Corporation the Officers do. The existence of the corporation is not affected by the death or bankruptcy of a shareholder or by the transfer of its shares. IT HAS A CONTINUOUS EXISTENCE. IT IS IMMORTAL for as long as it complies with the annual requirements of the state in which it is incorporated.
In this legal world the number one thing that most people do not understand is that you must write down what is taking place in a Corporation, this is the veil. In order to have a Corporate Veil you must have records, meetings, resolutions, etc. In this corporate world if you did not document IT, IT never happened. This is where most people run into to problems, they never write down what happened in the corporation. This is why we are against Corp Kits, the client is left sitting at his or her desk trying to figure out how to fill the stupid thing out, and most of the time never getting them done. Let the experts take care of this for you. This would be us; concentrate on what you do best which is to make money.
At CorpNevadaOnline.com our all inclusive package Deluxe and Primeir, we file these companies in a little different fashion. The Resident Agent will be the Company that is being established. The corporation is named as a Noncommercial Resident Agent. We can do this because of a lease. We can do this because you are basically hiring us as your staff in Nevada. Thus establishing Better Nevada Presence.
The Limited Liability Company is probably the most flexible entity to form as a Corporation. There are several reasons why we like this type of entity. The foremost is the protection it affords through Statute Law.
Charging Order Protection:
If a member with a percentage of membership in a Limited Liability Company is involved in a lawsuit for any reason and loses, the judge or jury may award damages to the other party. If this happens, the member will have to disclose their interest in the Limited Liability Company. A lien can be placed on any distributions that person may have be coming to him or her.
However, most attorneys will not have their clients take this kind of lien because of the potential tax consequences. Even if there is not a distribution issued the taxes on that distribution may follow the lien. In other words you get the judgment and win but you don’t get any money and you have to pay taxes as if you did, not a great strategy for the suing party.
Charging Order Protection goes both ways for the members in a LLC. If a lawsuit comes through from the personal side of a member the judgment can not force the liquidation of company assets to satisfy that judgment. On the other side, if a judgment is won against the company the assets of the company can be liquidated, however the personal property of the members can not be attacked to satisfy the judgment.
Nevada takes this one step further, in a LLC the member must vote unanimously to transfer any part of the membership. This means that everybody would have to agree that they wanted the suing party to be apart of the company. Hopefully this would not happen. The other side of that coin is that if you want to change the membership for what ever reason you would have to get written unanimous approval from all members even if that member holds only 1%. So chose your members carefully.
In short LLC’s unlike Stock held corporations have charging order protection. In the same scenario in a stock held corporation the judgment could seize the stock held by the suing party because it is considered personal property. Now you have the suing party as a stock holder.
The LLC’s have Charging Order Protection and can be taxed as a Sub Chapter S. This is cutting edge and most CPA’s are not aware of the process. Since this is true unless you are changing owners frequently we suggest using the LLC when ever possible. It is for better protection.
In Nevada both types of entities have the protection for there Stockholders or Members. Meaning, if a lawsuit comes at the corporation, the lawsuit attacks the corporate assets not personal assets of the stockholders or members
(link to statue NRS 78.747)
The main difference is Charging Order Protection. If a lawsuit comes at a Stockholder personally the stock held by that stockholder is considered personal property and can be awarded in a judgment.
In an LLC your structure is a percentage of Membership, you must have written unanimous approval from all Members to sell off any assets of the LLC. So if a judgment comes at one of the members the court cannot force other members to sell corporate assets in order to meet that judgment. The court can only put a lien on any disbursement that the member might be entitled to in the future.
What you really have to ask yourself is will I have owners in my corporation coming and going? This might be a reason to file a Stock held Corporation. Or do I want the extra protection of the LLC, will I have problems with a member not wanting to sign if the membership structure needs to change? Your decision, you need to decide.
This is a flow through to an Individual and is the best vehicle to pay yourself from. If you live in another state (most of you do) this is the best way to control your income. You get to decide how much salary you are going to pay yourself. Thus you control how much State income tax you are going to pay the state your in.
Salary is a 100% deduction.
Sub Chapter S Corporations can own Property (land, cars, boats, planes, etc.) these can be depreciated. Maintenance can be taken as a deduction.
If you sell a Property (land, cars, boats, planes, etc.) and make money on that property, (Capital Gains) there is a 15% cap on the taxes you pay and can be as low as 5%, depending on the amount of Capital Gains.
Sub Chapter S Corporations can pay for business trips. Full deduction.
Medical Insurance must be deducted from the individual’s tax return.
Sub Chapter S Corporations can take all normal expenses, pay salary and stock holders can take distributions. Distribution are the monies the company has left over at the end of the year. Everyone must pay Basic Federal Taxes but not everyone would have to pay taxes to the state they are in nor the Social Security and Medicare. Such structures can save a lot of money.
You can have one Stockholder if you like, or up to 100 people if you like.
Sub Chapter S Corporations must have a December year end.
The 2553(IRS Link) must be filed within 75 days of forming the company or in the first 3 months of the year.
You lose your privacy and are named in the 2553 to the IRS. Your name is on public record with the Secretary Of State. (If you chose the Deluxe package -Extra level Privacy, we can use your Nevada address and make it harder for anybody to identify you from the public records.)
This is the natural default of a LLC, this is how the IRS commonly recognizes a LLC. This is a flow through to the members in an LLC and commonly considered the best vehicle for holding property.
Partnerships, 1065 Form (IRS Link)can own Property (land, cars, boats, planes, ect.) and these can be depreciated. Maintenance can be taken as a deduction. These deductions can be a flow through to you and your other members.
If you sell a Property (land, cars, boats, planes, ect.) and make money on that property, (Capital Gains) there is a 15% cap on the taxes you pay and can be as low as 5%, depending on the amount of Capital Gains.
Disregarded Entity obtained by filing an 8832
This is simply a flow through to another individual or entity. No tax return is required.
Frequently Asked Questions: Do you still need help?
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The number one reason to incorporate in Nevada is the protection it avails to the owners of the Corporation, be it a Stock held Corporation or a Membership held Corporation (LLC) the owners are not the appropriate party to a law suit. Nevada has by far the best laws to protect the owners. The corporate veil in Nevada has been pierced only twice in the last 26 years, and both cases involved outright fraud.
(Link to Statue)
NRS 78.257 imposes sanctions against the use of corporate records for purposes contrary to the interests of the stockholders.
Nevada corporations may issue stock for capital, services, personal property, or real estate, including leases and options. The Managers (for LLCs) or Directors (for Corporations) may determine the value of any of these transactions and their decisions are final. Because Nevada has no state tax and because budget-conscious Nevada does not keep much information on their own residents, or their corporations, it does not collect any information to share with the IRS. Other states freely exchange all of the information they have on every resident and corporation but Nevada has no reciprocity arrangement with the IRS.
The reason you still will want to headquarter your business in Nevada is Nevada protection laws will follow into your own state. If a law suit comes at your company they are going to have to bring that suit to Nevada. This is a very expensive proposition, most law suits will stop right there because of the expense. They will have to prove fraud, harder yet. In fact, there were other Nevada cases where the corporation didn't do resolutions, minutes and meetings, had thinly capitalized the company, commingled funds... and still, Nevada protected the corporate veil! Nevada is a pro-business state, meaning they strongly protect the business owner. Other states are more Pro Consumers.
In the last few years there has been an explosion of practicing lawyers in this country. In 1990 there were approximately 650,000 lawyers in this country, today over 1 million. What seems to be happening in this country as soon as an individual starts to get ahead the frivolous law suits come out of the wood work, when you can spill coffee in your own lap and win a settlement ( Mc Donald's Case), this may seem like a legitimate way to make a good living. When lawsuits are being considered what they (lawyers) are looking for is assets that are attackable. They are hoping you will just pay them off so they will go away, they really do not want to go to court. Meanwhile it costs approximately $5,000.00 just to answer a suit and that does not mean going to court. These will really cut into your bottom line, if too many of them show up it can put you out of business. If you have a visible business in your part of the country you may have to register your Nevada Corporation in your State in order to do business. Going through the process may well be worth the effort. This will usually cost somewhere between $300.00 and $700.00 to do the registration.
There are a lot of reasons to incorporate in Nevada. The number one reason to incorporate in Nevada is that the owners of the corporation are not the appropriate party to a law suit. Let me explain in detail exactly what that means.
Take for example a Chiropractor in California. Really nice guy, worked really hard to build his practice. He treated his patience's with kindness and care. He paid his malpractice insurance for years. He got a new bookkeeper and the insurance lapsed for 4 months. A slick lawyer got wind of the lapse. He was taken to court, of course, lost the suit, before he could even make it home from court they had come and taken his vintage cars, boat, and attached liens on his home. In California as in many other states when there are not enough assets in the business then they go after the personal property of the owners of the company to satisfy any judgments.
If he had held his assets in a Nevada Corporation the judgment would have been restricted to what that particular corporation held in assets. The lawsuit would have to be brought to Nevada and fraud would have to have been proven. The lawsuit may never have come, because it would have been much more expensive for the lawyers to pursue. When you have a lot equity then we think it is advisable to separate those assets out into different corporations so you don't have such a juicy target for any mishap that my come you way.
Here at CorpNevadaOnline.com we have come up with a way to keep you private, so when the lawyers are investigating your assets to see if it is worth the effort to pursue a new case, they will not find you at all. If a lawyer can not find anything to sell or attach often those frivolous law suits disappear.
So often it is after the fact when clients come to us. They are just recovering form losing everything.