Some things you might like to know:
No. The use of certain words in your new company name is limited. You obviously may not use any off color or suggestive words. There is also a restriction against using certain words without having first qualified with a specific state agency. For instance, using the word "bank" anywhere in the name would require prior approval of the state Commissioner of Financial Institutions. Here are the rest of the current, (subject-to-change) names that CANNOT be used:
ACCOUNTANCY, ACCOUNTANT, ACCOUNTING, ADJUSTER, ANNUITY, ARCHITECT, ARCHITECTURAL, ARCHITECTURE, ARCHITECTURE, AUDITING, AUDITOR, BANC, BANCARD, BANCO, BANCOR, BANCORP, BANK, BANKER, BANKING, BANQ, BANQUE, CASUALTY, CERTIFIED PUBLIC ACCOUNT, COLLEGE, COMMON-INTEREST COMMUNITY, COMMUNITY ASSOCIATION, CPA, CREDIT UNION, ENGINEER, ENGINEERED, ENGINEERING, FINANCIAL, HOA, HOME OWNERS ASSOCIATION, INDEMNITY, INSURANCE, INTERBANKING, LICENSED ENGINEER, LICENSED ARCHITECT, LICENSED RESIDENTIAL DESIGNER, LIFE & ACCIDENT, MASTER ASSOCIATION, MORTGAGE BANKING, MORTGAGE, PROFESSIONAL ENGINEER, REALTOR, REGISTERED INTERIOR DESIGN, REGISTERED ARCHITECT, REGISTERED INTERIOR DESIGNER, REGISTERED RESIDENTIAL DESIGNER REINSURANCE, RESIDENTIAL DESIGNER, RESIDENTIAL DESIGN, RISK RETENTION GROUP, SAVINGS & LOAN, SURETY, THRIFT, TRUST, TRUSTEE, UNDERWRITER, UNDERWRITING, UNIT-OWNERS ASSOCIATION, UNIVERSITY. For more information from the Secretary of State click here. Return to top of page
Corporation or LLC? Watch this short video from our friend and associate Jeff Unger. If you form an LLC you will most certainly need a professional to guide you along the way.
LLC's should not be confused with corporations! LLC's are run by written agreement, whereas Corporations are controlled by a board of directors who are elected by the stockholders. Operational complexity is higher for LLC's and S Corporations than for C Corporations. LLC's generally are not taken public without considerable difficulty. LLC's are reasonably new entities that are being utilized increasingly over S corporations and partnerships as a way to enjoy the personal asset protection of a corporation, the flow-thru tax treatment in partnerships, and for the avoidance of numerous technical rules applying to S corporations. Special note: With an S corporation or LLC, income distribution cannot be controlled-it must be distributed, and the tax year must end in December. In a C corporation, funds can remain in (be held by) the corporation for distribution at times most advantageous for you.
The LLC is considered similar to a partnership with a corporate type liability umbrella attached. Generally, limited liability companies with two or more members are treated under Federal tax law as partnerships; LLCs with one member are disregarded for Federal income tax purposes, and the income is reported on the sole member's tax return. However, an LLC can elect to be treated as a corporation. While this election is easily accomplished by filing IRS form 8832 (Entity Classification Election), it may not a good idea for an LLC to elect to be taxed like a corporation.
You should seek expert tax advice prior to forming an LLC. Some clients have formed LLC's only to discover later that they have established the wrong entity for their needs. Also be aware that "your state" may seek to tax your LLC as a corporation.
THIS IS CRITICAL: Talk with your tax advisor about proper IRS filings regarding any entiy, especially LLC's! If you dont know a good tax preparer, call us.
Members of LLC's may be any individual person, entity, trust, nonresident alien, partnership, corporation, or other domestic, or foreign LLC.
In a Nevada LLC, you are either a "manager" or a "managing member". A managing member is a person or entity owning an interest in the company much the same as a stockholder in a corporation. A "manager" is a person or entity elected (hired) by the members to run the company and would be analogous to the general partner in a limited partnership. LLC's are typically, although not necessarily, run by a manager. The company must be formed with one or more "managers", or if there are no managers, one or more "managing members"; and an initial organizer. The organizer simply goes away after formation, and has no control or interest in the entity.
Before commencement of business, you must seriously consider drafting an operating agreement. Like the partnership agreement in a limited partnership, the operating agreement should detail the affairs and conduct of the business as well as the rights of the participants. Remember, since there is no stock to control the entity, the operating agreement will be used to settle any disputes. Return to top of page
Do you need a C or an S? Corporations are formed generically. The C or S status is established after formation when you apply for your EIN number with the IRS. If you are unsure whether you need an S or C corporation, the following may be of some help. The information in this section is however, far from complete. You should not make a final determination without the advice of professional tax counsel.
An S corporation as referred to in the Internal Revenue Code is one which when properly instituted, does not pay federal corporate taxes; instead passing through net income and losses on a prorate basis to its stockholders, who include their portion of the earnings or losses on their individual returns for that year. Corporations that are not "S" corporations are considered "C" corporations. Though not a complete list, several major differences from a C corporation stand out. Some S Corporation requirements are:
The IRS says "Tax practitioners and Subchapter S Shareholders need to be aware that revenue ruling 74-44 states that the Internal Revenue Service (IRS) will re-characterize small business corporation dividends paid to shareholders as salary when such dividends are paid to the shareholders in lieu of reasonable compensation for services."
If you do not want any of the restrictions listed above, then you may wish to consider a "C" corporation.
C-Corporation notes: DIVIDENDS issued may provide tax savings under 2003 tax laws (until congress takes it away). Too detailed to discuss here. Call your tax advisor!
If the corporation intends to reinvest its profits in the near future, S status would probably not be the best choice, since there would be no threat of double taxation with the C status. If you anticipate significant losses during the start up years and the stockholders have tax basis obligations worthy of reduction due to such losses, then S status may be the right choice. Before deciding which entity is best, consider the following:
An incorporator is a person in charge of setting up the corporation and filing the articles of incorporation with the state of incorporation. When an attorney is hired to set up a corporation, they may or may not take on the role of incorporator. An incorporator may have to do some preliminary things such as gathering the initial investors and investments or capitalization that are going to be used for setting up the corporation. In addition, the incorporator will prepare and file the articles of incorporation, naming the initial board of directors.
The incorporator generally has broad powers up until the directors assume management of the corporation. Once the directors take over and have their first official meeting, the incorporator basically no longer has any power or management ability left. Return to top of page
How long does it take? The state offers a couple of options. A standard formation will take approximately 7 days for filing. The longest time we have seen was 4 weeks, but that is rare. Neither the time taken, nor the effective date can be guaranteed with standard formation. The state puts everything in a pile, then works their way down. If you pay an additional fee of $125.00, they will expedite the formation and almost always have it back within 24 hours excluding weekends and holidays. There are provisions for 1 and 2 hour turnarounds, but the fees are generally considered prohibitive. Return to top of page
Other fees due shortly after forming your new company. The Nevada Secretary of State now requires newly formed entities to file the Initial List at the time of formation. The fee is $350.00 (minimum) which includes an annual filing fee and a state business license. At this point you will have already paid your registered agent thru next year, so you will be all set in the State of Nevada. Each year you must renew with both the state and your registered agent paying their respective annual fees. Failure to renew each year with either the state or your agent can result in revocation of your charter in addition to penalties and late fees.
After you receive your Corporation: Items below (after each bullet) should be addressed as soon as possible.
At the time of formation, you are now required to file the initial list of Officers and Directors. You will also be required to obtain a State Business License. Both fees will total $650.00 per year; $150. for the list, and $500. for the license. Return to top of page
After you receive your LLC kit: Items below (after each bullet) should be addressed as soon as possible.
Some considerations to include in your operating agreement: Under what conditions may a Manager be allowed to resign? How and when can a Member resign or withdraw from the company? Should there be any penalties connected with such actions.
Who should be responsible for maintaining company records? What about alternates?
How should compensation for Managers or Managing Members be determined? Will there be perks? Who will get them and in what proportions?
If you use a Manager, who should it be, and how should he or she be chosen? What to do if the Manager is disabled or dies? What to do in the event of a disagreement between a Manager and a Member?
Should you have disability insurance for Managers or Members? What about provisions for paid vacations or leaves?
What does the company do if a Member dies? His or her interest in the company may now be under the control of someone else. Should you anticipate that and put limitations on transferability? What about automated buyout provisions for that or other such events?
How much money should a Manager or a Member be allowed to spend without majority or unanimous approval by the Members?
If the company needs (additional) money, how will it be raised?
These are only a very few considerations that may affect your company. Who makes major decisions, how contributions are handled, what business(s) to be involved in, partnering with other firms, etc., are questions that need to be settled early in life of the company. See a professional!
Side note: [Banks no longer allow us to open accounts in your absence.]
The following documents are not required to be filed with the State of Nevada:
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