More Company Info
The Proprietor, Partnership & Personal Asset Ownership Tutorial
Corporation Tutorial
A corporation is formed by filing articles of incorporation in the state where the corporation has its business Headquarters. A corporation is distinguished from a sole-proprietorship or general partnership primarily because the corporation offers its owners (shareholders) protection from individual liability. In other words, the owners of the corporation will not be personally liable for corporate debts, negligence, or breaches of contract provided the corporation has been properly maintained. This is particularly true in the State of Nevada.
Further, a corporation is different from other forms of business entities in that it is taxed as a separate entity. The corporation has its own tax ID number and files its own income tax return. Many small business owners find it useful to allow income to build up within a corporation or reinvest corporate income because, often times, the corporate income tax rate is lower than the business owner's individual income tax rate.
In order to maintain the asset protection advantages associated with operating a business as a corporation, it is important to observe the formalities of operating a corporation. Specifically, the corporation must have a comprehensive set of bylaws setting out the rules of the corporation. Additionally, the corporation must have at least an annual meeting of the board of directors to elect officers and conduct other necessary business.
Further, the owners must keep separate financial records for the corporation. For example, if the owners use the corporation's checking account like a personal checking account, the courts will look past the corporate veil and find the individual was operating as a sole proprietorship and not a corporation.
The corporation allows individual owners to divide the corporation into shares. These shares are memorialized using stock certificates. Allowing the ownership of the corporation to be divided among more than one individual is useful for many reasons. First, it allows the corporation to raise capital by selling its shares. Second, it allows for the democratic management of the corporation when there are multiple owners.
In addition, if the majority of stock certificates are issued to minorities (including women) it will allow the corporation to be classified as a minority owned business. Consequently, the corporation may often be given preferential treatment by government entities.
The corporation is not just a one time set up operation. To keep and protect its status it must keep good records, comply with State filing statutes and have an appropriate Headquarters base.
The Required Corporate Operations
The Operations of a Corporation require that the different levels of management (Directors, Stockholders, Officers, Employees, etc.) fulfill their respective obligatory responsibilities in a cohesive and appropriate manner that will be performed in best interest of the Corporation.
In addition, there are certain essential functions that must be performed and records that must kept to maintain the structural integrity of the legal veil and the viability of the company.
The following is a partial list of the essentials. (See NRS Chapter 78 below for full list of essentials)
| Initial Directors Filing | Create & accept Bylaws |
| Directors Initial & Annual Meetings | Stockholders Initial & Annual Meetings |
| Initial & Annual Election of Directors | Initial & Annual election of Officers |
| Necessary Corporate Resolutions | Necessary Certificates of Authority |
| Initial & Annual State Filings | Initial & Annual Penalty of Perjury Declaration |
| Corporate Asset Encumbrance | Stock Distribution & ledger |
| Selling, Merging or Dissolution | Changes or Consolidation of Assets, Business, etc. |
| Annual Notices & Proxies | Banking Documentation and Authority |
The essentials cannot be ignored if a Company is to remain active and effective in protecting its Directors, Officers and Stockholders. With its Headquarters Service, Corporate Nevada Ltd., will assist in performing many of these functions on behalf of the Corporation and will continuously be available as consultants to assist the respective parties in their duties. To many, this is the premier consideration in having Corporate Nevada Ltd. form and maintain their companies.
Corporate Nevada Ltd., with its personalized “HEADQUARTERS” consulting service, is the perfect way to inexpensively and professionally assist in keeping the Legal Veil in good standing. (See NRS Chapter 78 for State Statute requirements)
Limited Liability Company Tutorial
Many Attorneys and CPAs view the Limited Liability Company (LLC) as the business form of choice for those business owners desiring 1) protection from individual liability for company debts, negligence, and breaches of contract with personal liability limited to the contribution and any personally guaranteed loans; 2) charging order protection and 3) flow through taxation, unless taxed as a Corporation.
In addition, the IRS is now allowing an LLC election to be taxed as a Subchapter S. This makes LLCs very flexible as they can now be taxed as Disregarded Entities, Partnerships, Corporations and Sub Chapter S while maintaining limited liability, charging order protection and privacy.
The LLC is a hybrid between the corporation and the limited partnership. The LLC protects all members (owners) from individual liability for company debts and misdeeds, much like the corporation. What's more, while a creditor of the corporation can attach corporate stock and gain control of the corporation, a creditor of a LLC cannot become a member and control the company, a creditor of a LLC can only receive an income interest in the company.
In the event a Member is sued and a judgment rendered, the creditor only has an income interest of that Member. This is known as Charging Order Protection for the LLC and other Members. It is possible for the creditor to end up with no control in the company, no money if the “losing” member does not take a distribution and be liable for the Members tax liability. No control, no money and an additional tax liability is not a good position for the creditor. Therefore, Attorneys for the creditor are typically anxious to settle as it is in the best interest of their client.
Consequently, the LLC combines the best of corporations and partnerships because the LLC offers its members protection from individual liability and, like a limited partnership, allows others to become a member only if the other members unanimously agree.
The LLC natural tax default is that of a partnership or a disregarded entity in the event of only one Member. In other words, it is a flow through entity. The LLC does not pay income tax, rather income is distributed to the members according to their ownership interests and the members report the income on their individual income tax returns.
The LLC may also be taxed as a Corporation so the Members can enjoy certain Corporate tax benefits, like retained earnings. In addition, with the proper strategy the LLC taxed as a Corporation with the proper structure can offer maximum privacy.
The LLC is governed by its regulations called an operating agreement. LLC regulations are a hybrid between corporate bylaws and a partnership agreement. The LLC is further distinguished from the corporation in that it is not generally required to have annual meetings unless otherwise stated in the operating agreement. However, it is considered prudent and advisable to have at least an annual meeting to establish and maintain good records and accountability. In addition some states require a meeting at some interval.
In order to maintain protection from individual liability, the LLC must still keep its accounting separate from its individual owners, must have good and accountable essential records, and must have and abide by company regulations in the Operating Agreement.
The following is a partial list of essentials. (See NRS Chapter 86 below for full list of essentials)
| Initial Manager's Filing | Create & accept Operating Agreement |
| Managers Initial & Annual Meetings | Initial & Annual election of Officers |
| Necessary Company Resolutions | Necessary Certificates of Authority |
| Initial & Annual State Filings | Initial & Annual Penalty of Perjury Declaration |
| Company Asset Encumbrance | Membership Interest Ledger |
| Selling, Merging or Dissolution | Changes or Consolidation of Assets, Business, etc. |
| Annual Notices & Proxies | Banking Documentation and Authority. |
The essentials cannot be ignored if a Company is to remain active and effective in protecting its Members, Managers, and Officers. With its Headquarters Service, Corporate Nevada Ltd., will assist in performing many of these functions on behalf of the Corporation and will continuously be available as consultants to assist the respective parties in their duties. To many, this is the premier consideration in having Corporate Nevada Ltd. form and maintain their companies.
NRS CHAPTER 86 State Statutes for Limited Liability Company (LLC)
The Proprietor, Partnership & Personal Asset Ownership Tutorial
When all things are considered the sole proprietor or personal ownership may be the easiest but is not the wisestform of business or asset protection.
A person is automatically a sole proprietorship or personal owner unless they have taken the necessary steps to properly incorporate. A Sole Proprietorship (or Partnership if more than one owner) is the simplest form of business.
With the exception of complying with any applicable licensing requirements, there are no formalities required of a sole proprietorship. The same situation and consequences exist for personal ownership of assets.
The owner has total personal management and control over the company and assets. However, the price for this control is that the owner is at risk for personal liability incurred by the owner, owner’s agents, employees, lawsuits, etc.
Fictitious Name (dba)
A business conducted or asset owned under a name which does not show the owner’s surname or implies the existence of additional owners, a fictitious business name statement (dba) and notice may be required.
Contrary to popular belief, the fictitious business name does not offer any legal protection and the owner, spouse, family and partners have unlimited personal liability for loss.
A sole proprietor or owner, even with a fictitious name, is not a separate entity itself. Rather, a sole proprietor is directly responsible, along with other related parties for its debts.
Personal Liability
As a sole proprietor and/or asset holder the owner, spouse, family and partners are personally liable for the company or assets with unlimited personal liability for loss, thus placing all their personal assets and wealth at risk.
This means that if the owner of an asset or sole proprietor business doesn't pay a supplier, defaults on a debt or loses a lawsuit, the creditor can legally come after all related parties' assets and valued possessions.
Additionally, should a negative event happen personally for a sole proprietor or related parties it would have negative consequences against the business and assets.
Offshore Income is Taxable
Many United States (U.S.) citizens and resident aliens receive income from foreign sources. There have been recent reports about the interest of the Internal Revenue Service (IRS) in taxpayers with accounts in Liechtenstein. The interest of the IRS, however, extends beyond accounts in Liechtenstein to accounts anywhere in the world. Consequently, the IRS reminds you to report your worldwide income on your U.S. tax return.
If you are a U.S. citizen or resident alien, you must report income from all sources within and outside of the U.S. This is true whether or not you receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return) or the foreign equivalents. See Publication 525, Taxable and Nontaxable Income for more information.
Additionally, if you are a U.S. citizen or resident alien, the rules for filing income, estate and gift tax returns and for paying estimated tax are generally the same whether you are living in the U.S. or abroad.
