An often over-looked area of Nevada law is the formation of businesses. However, if you are looking to start a business in Nevada, it is important to know the difference between the types of business entities. Nevada recognizes several types of businesses, including S-Corporations, C-Corporations, and Limited Liability Companies. If this sounds like a foreign language, keep reading.
For starters, Nevada businesses can be either C-Corporations or S-Corporations registered through the Nevada Secretary of State. Don’t worry; neither of these options must be determined at the formation of the business. When you first charter your corporation, it will automatically be labeled a C-Corporation. If you take no action, it will remain at the C level. Your corporation becomes an S-Corporation in Nevada when you file a form with the IRS. The form, named Form 2553, can be filed at any time. The business can revert back to a C-Corporation by filing another request with the IRS, but then may not again change back to an S-Corporation for a minimum of 5 years.
As the designated default corporation, C-Corporations are formed after filing the appropriate forms with the Secretary of State. These required documents include the “Articles of Incorporation”, and includes other information such as the business name and the name of registered agents.
C-Corporations are often favored in that there is the ability to become a publicly traded business, essentially giving way to unlimited growth potential. The Corporation can grow as big as it needs to. However, perhaps the most important detail to keep in mind is a C-Corporation is treated as a separate entity. Since it is a separate entity, the Corporation itself is taxed, and the shareholders are privately taxed. This “double” taxation is the main reason many businesses choose to become an S-Corporation and can be important for liability protection.
In Nevada, an S-Corporation treats the corporation and the shareholders as two different entities. This means that instead of the corporation filing its own income tax return, the individual shareholders instead claim their share on personal tax returns. This individual tax return includes the corporations calculated profits and losses.
S-Corporations have generally the same registry requirements through the Secretary of State as C-Corporations. However, the two may differ in requirements regarding registered agents, employee compensation limitations, employee benefits, size, and the type of business activity allowed, to name a few. These seemingly minor differences between the two types of Nevada corporations can have major consequences. Therefore, you should consult with an attorney to ensure accurate filing and formation.
Limited Liability Companies
If your business does not seem to fit in one of the above categories, Nevada also recognizes the formation of Limited Liability Companies, commonly referred to as LLCs. As the name implies, an LLC provides limited liability and protection for the business owner, and personal assets are protected from legal action against the business (with some exceptions). Like a corporation in Nevada, you can create an LLC by filing the LLC Articles of Organization with the Secretary of State. The process may also require the business name (including the LLC language), business practice, and registered agents.
An LLC most resembles an S-Corporation in that an LLC includes the “pass through” taxation that an S-Corporation has. This means an LLC is also eligible to allow the partners to claim their profits and losses on an individual tax return rather than a corporate tax return. Unlike S or C-Corporations, the biggest disadvantage of an LLC is the limited growth potential. An LLC cannot sell shares or grow beyond its capacity. However, an LLC can transfer interest within the company instead.
Business formation in Nevada is a niche area of the law that requires time, effort, and an attention to detail. If you have any questions about Nevada’s business laws, please do not hesitate to contact Connor & Connor PLLC today. You may contact one of the attorneys through e-mail at email@example.com or by phone at (702) 750-9139, or visit www.connorpllc.com. You may also visit the firm’s Facebook page at https://www.facebook.com/ConnorConnorPllc or follow the firm on twitter at https://www.twitter.com/Connor_pllc