1. Step One in starting a business is deciding what form of business entity you want.
TYPES OF BUSINESS ENTITIES
A sole proprietorship is a business owned by one individual. A sole proprietor is personally responsible for all the debts and decisions of his business.
A corporation is a separate legal entity which is created under the laws of a state or certain other jurisdictions. Usually, shareholders of a corporation are only responsible for the debts of the corporation to the extent of their investment, unless they have guaranteed to be personally responsible for some debt. “One or more natural persons may associate to establish a corporation for the transaction of any lawful business…” (Nevada corporations are recognized throughout the United States and in most countries of the world.)
A close corporation is a small corporation with:
a) No more than 30 shareholders;
b) Restrictions on transfer of its shares;
c) Stock which cannot be sold in a public offering; and
d) Other specific requirements. (NRS 78A.020)
e) More simple procedural requirements than a regular corporation.
A Subchapter S corporation is a type of small corporation which can be used to allow its shareholders to have their share of its income taxed to them and to have their share of losses claimed as losses by them, individually. Subchapter S corporations usually avoid the federal corporate income tax (Internal Revenue Code §1361 et seq). The requirements for a Subchapter S corporation are federal, not state requirements. States do not regulate Subchapter S status.
A partnership is an association of two or more persons to carry on as co-owners of a business for profit. Every general partner is liable for all the debts of the partnership.
A limited partnership is a business association of two or more persons. It has both general and limited partners. The general partners are liable for debts of the limited partnership and have the responsibility of operating the business. The limited partners do not participate in the control of the business and are only liable for the debts of the limited partnership to the extent of their investment in it.
A limited-liability company is a separate legal entity, created under the laws of the state or certain other jurisdictions. As compared to a corporation, it has more simple regulations. All of its members manage it in proportion to their contribution to its capital, unless they have elected to put its management in the control of a manager or managers, which should be accomplished in an operating agreement.
Nevada limited-liability companies may be organized by one person and may have a perpetual existence if the articles of organization or operating agreement provide that members may resign or withdraw without requiring the company to be dissolved, provided the remaining members approve. A member’s interest can be transferred and, if the terms of the articles and operating agreement, provide for approval by the remaining members, the transferee may become a substitute member.
Limited-liability companies were established to permit businesses to enjoy the tax benefits of a partnership without giving up the limited liability of a corporation. Although the IRS initially scrutinized limited-liability companies carefully to make sure they did not have most of the characteristics of a corporation, an early Revenue Ruling (98-37) permitted members of a limited-liability company to be taxed as partners. Currently, the IRS permits a limited-liability company or any entity not classified as a corporation to elect not to be taxed as a corporation; the profits of such entities are passed through and taxed to the members much like partners in a partnership. A one man limited-liability company is taxed as a sole proprietorship. Regulation 301.7701-3 does require an election to be made, however.
|1. SELECTING THE BUSINESS ENTITY||2. FORMATION OF THE BUSINESS ENTITY||3. LICENSING, PERMITTING & REGISTRATION|
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