Business Formation

Establishing a legal entity is an essential step for forming a new or up and coming business. Every business form has its own tax consequences, liability implications, and ownership restrictions.

It’s way easier and affordable to start things out right the first time around than trying to fix a mistake down the line. There are numerous laws and regulations out there, which increases the likelihood of making a mistake. You can ensure the success of your enterprise by contacting The Law Office of Lona L Webb, LLC, at (702) 202-0836 based in Henderson, Nevada, or you can fill out your information in the contact form so that we can assist your business to get off to the perfect start.

Sole Proprietorship

You’re out in the field marketing your business, attracting customers, getting paid, and you’ve probably gone official and have started printing your business cards. You can be referred to as a sole proprietor. As a matter of fact, the majority of businesses begin as sole proprietorships, but as the enterprise grows, you’ll want to create a separate legal entity. The reason for doing this is often described as the “corporate veil.”

Under a sole proprietorship, the owner is held liable for business operations and associations. That means that anybody suing you, as the sole proprietor owner of your business, has legal grounds to go after your personal assets such as your car, house, and personal bank accounts. In contradiction, partners, shareholders, and LLC members are generally not held personally liable for true business obligations. So your legal entity offers a shield that’s used to protect your assets from facing legal judgments.

LLCs

The limited liability company, or LLC, is among the more flexible business types making it a popular choice for business owners looking to establish a legal entity in Henderson, Nevada. First of all, the LLC “owners” are given limited liability like corporation shareholders. Secondly, the company income can be taxed in the way that you elect, which gives the members options as to how the income is going to be taxed. And finally, an LLC can be manager-managed or member-managed. In member-managed LLCs, every member can bind the company. In manager-managed LLCs, only an authorized officer or manager has the power to bind the company.

In both circumstances, individual members won’t be personally liable for the obligations, debts, and liabilities of the LLC, as long as the LLC is properly established and operated. It’s an important factor. Just forming an LLC doesn’t automatically warrant a corporate veil. If you’re, for instance, paying off your mortgage from your business bank account, or you don’t have a valid business bank account, the plaintiff may argue you’re not treating the business establishment as an ‘individual.’ And should, therefore, be permitted to pierce through the corporate veil and gain access to your personal assets. It’s integral that you observe and follow the right operating procedures of the business to make sure the corporate veil is kept intact.

Partnership

If you decide to get into business with another party, it’s crucial that you’re conversant with all the ramifications of the partnership. If you’ve not established a legal entity, then it’s a general partnership. This sort of happenstance arrangement is dangerous, given that every party can be held liable for any business obligations, debts, and liabilities. In summation, if one partner commits a judgment error or takes out a loan that results in a lawsuit, all partners can be responsible and may have to pay off the loan or rectify a judgment using personal assets.

In the case of a limited partnership, one party is designated to be the general partner while the others become limited partners. Here, the general partner will be on the hook for business obligations while limited partners enjoy limited liability perks as that of shareholders of an enterprise or LLC members. In return for their limited liability status, limited partners don’t participate in any of the company’s management. The statutes of the state generally govern limited partnerships. They are formed by making an application with the Secretary of State in Nevada. As you can see, it’s important to establish a formal structure and partnership agreements that address these and other arising issues and give an organized and methodical method of dealing with them.

Corporation

The corporation is the conventional form of what is referred to as a business entity. The shareholders own corporations, and they appoint directors to business management. The directors then hire officers to deal with the day to day operations. Damages or debt liabilities are generally limited to the assets of the corporation, which protect officers and shareholders from personally being held liable. Although most corporations opt to go for the subchapter S election, a business that wants to go public or raise funds from angel investors or venture capitalists tends to gravitate towards corporations because of investor preference.

Observing corporate formalities is essential in the corporation for it to maintain the protection that’s afforded to it by this entity type, like shielding shareholders from personally being liable for company obligations. Corporate formalities are especially important when shareholders and directors need to make a decision and keep personal and corporate assets separated. You most probably have seen those corporate books – the big fancy binders with a corporate seal embedded. Although most owners set these binders on the shelf and forget, they need to be filed out regularly with corporate minutes that document shareholder and director decisions. Dust off that binder, book a meeting, and start taking some minutes!

S Corps

This is a corporation that is taxed like a partnership. Unlike a C Corporation, S Corporation business income ‘passes through’ the legal entity and reflects on the personal tax returns of business owners, which sometimes results in tax savings. If you want to form an S corporation, you have to file your election with the IRS before the deadline or risk the option getting lost. Make sure you’ve consulted with a certified CPA regarding the best tax form to elect for your establishment.

Licensing

Establishing a legal entity at the state level isn’t enough. Your company may be subject to the licensing regulations at the city and county level. If your business is located in Henderson, Nevada, you may need a business license to operate. Check your jurisdiction here.

After determining your jurisdiction, consult with the business license bureau to find out what sort of license you require. Depending on your business type, you may need to get a privileged license, which often has higher fees and more stringent standards. If you want another business name that’s not listed with the Secretary of State, you will have to file a Fictitious Company Name with Clark County.

You should note that businesses operating without the necessary licensing documents can be subject to steep penalties. So ensure your licenses are up-to-date.