LLC vs Corporation vs Partnership vs Sole Proprietorship
What are they - How do they differ?

Limited Liability Company (LLC)

The LLC is a hybrid form of doing business that combines characteristics of the corporate structure and the partnership structure. It is a separate entity like a corporation and therefore carries liability protection for all of its' members, but (if structured properly) is taxed like a partnership which has the benefit of flow through taxation. The business lawyers at Adams Law Group are well versed in the formation of LLC's and other business entities, as well as the drafting of all documents for the created and ongoing operations of LLC's.

The LLC's owners are called members and can be virtually any entity including individuals (local or foreign), corporations, other LLCs, trusts, pension plans etc. Nevada permits one member LLC's.  An LLC is formed by filing the Articles of Organization with the Secretary of State. The Corporations Division of the Nevada Secretary of State's office handles LLC's.  Like Nevada, most states require an annual report be filed to keep them apprised of the LLC's current status.  However, other than that, there are no other on-going Secretary of State reports or forms to file. The LLC is generally not a tax paying entity. Profits and losses generally  flow directly through to the individual owners and are reported on the individual owners tax returns. 

It is generally advisable that the LLC have an Operating Agreement.  The business lawyers at Adams Law Group will draft a  carefully crafted Operating Agreement specific to the needs of the client's organization. The Operating Agreement is the agreement between the members as to how the LLC will be managed and contains provisions that will qualify it for the beneficial partnership tax treatment. 

Corporations (including Subchapter S)

The corporation is a separate entity and therefore carries with it limited liability protection for its owners or stockholders. It has perpetual life and is a tax paying entity. Double taxation is a potential negative feature as earnings are taxed at the entity level and then taxed again when distributed to the stockholders as dividends.

A corporation is formed by filing Articles of Incorporation with the Secretary of State. Shares of stock are issued to the shareholders, bylaws are adopted, and a board of directors is elected. The board of directors manage the corporation and appoint officers (president, secretary, treasurer) to maintain the ongoing daily affairs. The laws require regular director and shareholder meetings be held, minutes of those meetings be kept, and any decisions made at those meetings be formalized in the form of written resolutions. Failure to maintain these records will jeopardize the corporate status and leave the stockholders vulnerable to personal attack and responsibility for tax liability and corporate debt.

The Subchapter S corporation is formed by making a special IRS election. When properly made and maintained, this election allows the flow-through taxation treatment similar to that which partnerships and LLC's enjoy. 

WHY INCORPORATE IN NEVADA?

• No Corporate Income Tax
• No Taxes on Corporate Shares
• No Franchise Tax
• No Personal Income Tax
• Nominal Annual Fees
• Nevada corporations may purchase, hold, sell or transfer shares of its own stock.
• Nevada corporations may issue stock for capital, services, personal property, or real estate, including leases and options. The directors may determine the value of any of these transactions, and their decision is final.
• No Franchise Tax on Income
• No Inheritance or Gift Tax
• No Unitary Tax
• No Estate Tax
• Competitive Sales and Property Tax Rates
• Minimal Employer Payroll Tax - 0.7% of gross wages with deductions for employer paid health insurance
• Nevada's Business Court
  • Developed on the Delaware model, the Business Court in Nevada minimizes the time, cost and risks of commercial litigation by:
    • Early, comprehensive case management
    • Active judicial participation in settlement
    • Priority for hearing settings to avoid business disruption
    • Predictability of legal decisions in commercial matters

Partnership (including Limited Partnership)

The partnership form of doing business is noted for its simplicity and ease of formation. A general partnership can be formed with nothing more than a verbal agreement (although it is advisable to draft a written agreement). Nothing has to be filed with the state and freedom of contract is the governing principle. The down side is that the partners are joint and severally liable for the debts of the partnership. This means that each partner is fully liable for the actions of the other partner.

A limited partnership offers more protection in that the limited partners are generally not liable for partnership debt and only their investment is at risk. A general partner must be appointed who is responsible for the limited partnership's operations.  A limited partnership files a document with the secretary of state and is governed by a limited partnership agreement.

A limited partnership is limited to 35 owners. Both general and limited partnerships enjoy the benefits of partnership taxation.

Sole Proprietorship

Operating as a sole proprietor is certainly the easiest and cheapest form of doing business.  After getting proper state and local business licenses, a sole proprietor can basically open the doors and be in business. The temptation to operate this way is great and many succumb. The shortcomings of this form of business are great also. There is absolutely no protection between you and your business and there are no tax benefits. While there are no particular record keeping requirements, this may lead to sloppy bookkeeping. Sloppy business creates poor decision making and sets up failure. Planning, at the beginning, can save the sole proprietor money on an ongoing basis and protect the assets that the sole proprietor has worked so hard to accumulate.

The business formation attorneys at Adams Law Group, in Las Vegas, Nevada, will form the correct business entity for its clients, draft the articles, bylaws, and minutes, prepare and issue stock or membership certificates, and act as the registered agent. Fees for simple corporations and LLC's start from $1,250.00.  The business lawyers at Adams Law Group can also assist in corporate record keeping and the drafting of resolutions for corporate minutes.