There are several forms that a business can take. The structure that is best for a specific business depends on the circumstances of individuals, the nature of the business, where it operates, tax consequences, and other factors. An attorney can guide the business owner in the direction that works best for that business, and then complete the steps necessary for establishing the chosen form of business. All business entities are legally regarded as individual “persons.” All businesses formed and doing business in Nevada must obtain a Nevada business license through the Nevada Secretary of State.
Many new businesses begin as a sole proprietorship in which a single individual owns all of the assets and is responsible for the liabilities of the business. The sole proprietor puts personal assets at risk in the case of a lawsuit against the business. The basic, simple partnership structure is similar to the sole proprietorship except that there is more than one individual involved, and it is the partnership that is responsible for obligations that the partnership creates. All partners of a general partnership are personally liable for the debts and obligations of the partnership including certain obligations and judgments chargeable to the partnership arising from wrongful acts or omission of a partner. Within the partnership structure are several options available to business partners. One of those options is to create a limited liability partnership in which all of the assets of the partners are not at risk. It is crucial that an attorney define the nature and scope of a partnership.
An individual or group of individuals may choose to incorporate a business rather than operate either as a sole proprietor or as a partnership. In legal terms, a corporation is a “person.” As such, it is responsible not only for its own assets but also for its own liabilities. If a lawsuit arises, the suit is against the corporation. Although a corporation’s assets can be attached through such an action, the assets of the corporation’s principals cannot be. The corporate structure protects its principals from liability for the corporation’s debts and other liabilities.
The corporation is chartered by the state and must abide by the laws of that state, although, compliance and oversight is mostly left to the direction of officers and stockholders. Nevada is a popular state in which to incorporate because of the benefits of incorporation here. Though an individual or group of individuals can complete and file necessary forms on their own, only an attorney can guide the formation of a corporation for the best interests of its principals.
Limited Liability Company (LLC)
A limited liability company is a relatively new form of business entity that provides flexibility for businesses and tax planning. In its simplest form, the limited liability company (LLC) is a hybrid between the partnership and the corporation. Its leading benefit is that it protects member entities from liabilities incurred by the LLC. The LLC can be a single-member entity, bringing the benefits of limited liability to the individual who otherwise might operate as a sole proprietor. The LLC is available in every state. Nevada is known for its favorable LLC laws and is a popular state in which to charter an LLC.
The LLC business structure provides tax benefits that are not available through other forms of business. For the purposes of state law, the LLC also can provide asset protection capabilities if it is structured to do so. The LLC also distributes tax liability among members, who report a share of the LLC’s profit or loss on their individual tax returns. The share that each member claims is specified in the LLC’s operating agreement, which in itself is enough reason to secure the assistance of an attorney in establishing the LLC. LLC members can hold equal shares or establish ownership shares in whatever manner they choose. The IRS allows the members of an LLC to decide how to divide these shares, rather than dictating how LLC members must report the business results of the LLC’s activities.
Depending on circumstances and on the nature of the business, the LLC is an appropriate form of business for companies of all sizes. To date, most LLCs have been limited liability forms of the sole proprietorship or partnership, but increasing numbers of larger companies are changing from the corporate structure to the LLC structure. An example is the former Chrysler Corporation, which for some time has been Chrysler Group LLC.
Regardless of the type of business, an attorney can suggest the most appropriate legal structure. Attorney involvement is crucial when changing from one form to another as in the case of Chrysler. Increasing numbers of corporations are opting for the LLC structure, but other business forms may be more appropriate for other types of businesses. A competent attorney provides a wealth of advice and effective business and tax planning.