| If you have been considering forming a corporation or | | | | (1) be a corporation organized in any U.S. state, (2) not |
| other business entity to provide yourself with limited | | | | be an ineligible corporation (certain types of businesses |
| liability and financing options in your business venture, | | | | are not eligible), and (3) have only one class of stock. If |
| you have made an important first step. You may have | | | | eligible, the corporation may file an S-corporation |
| compared the tax benefits of corporations and limited | | | | election form, Form 2553, with the Internal Revenue |
| liability companies or limited partnerships. If you have | | | | Service within forty-five days after incorporating. While |
| done so, you likely realized that corporations are taxed | | | | this will allow flow-through federal taxation, it is |
| twice, while limited liability companies and limited | | | | important to note that five states do not recognize |
| partnerships are taxed once. While a corporation's | | | | S-corporations and may tax the corporation as a |
| profits are taxed once as the corporation's income | | | | C-corporation. It is also important to note that |
| and again when the profits are distributed as dividends, | | | | S-corporations are not eligible for certain tax |
| a limited liability company or limited partnership's profits | | | | deductions that C-corporations may enjoy. |
| flow through the entity and are only taxed once as | | | | • Notice and Obey S-Corporation Limitations - Once |
| personal income to the individual member of the limited | | | | the corporation has made its S-corporation election, it |
| liability company or partner in the limited partnership. | | | | must notice and obey the limitations on S-corporations |
| This is referred to as flow-through taxation. Based | | | | to maintain its flow-through tax status. If the |
| solely on the tax treatment of corporations, you may | | | | corporation violates any of the following limitations, it will |
| be prepared to use a limited liability company or limited | | | | lose S-corporation status and will not be eligible for |
| partnership for your business. | | | | flow-through taxation for five years: (1) it must have |
| While limited liability companies and limited partnerships | | | | one hundred or fewer shareholders; (2) all of its |
| feature outstanding charging order protection, Nevada | | | | shareholders must be individuals, descendants' estates, |
| has recently extended such protection to corporations | | | | estates of individuals in bankruptcy, or certain trusts, |
| with between two and seventy-five shareholders. | | | | because business entities may not be shareholders; |
| Before you decide which business entity to use, there | | | | and, (3) all of its shareholders must either be United |
| is one more option for you to consider. If you choose | | | | States citizens or resident aliens in the United States |
| to use a limited liability company or a limited partnership, | | | | (nonresident aliens may not be shareholders). If the |
| your business may limit its financing options. Financing | | | | corporation loses its flow-through tax status, the |
| for a limited liability company or a limited partnership | | | | Internal Revenue Service will treat it as a |
| may not be as readily available as financing for a | | | | C-corporation. |
| corporation, because interests in such entities are not | | | | Every business is unique. Your business's form should |
| as transferable as interests, or shares of stock, in a | | | | be based on your specific circumstances. While the |
| corporation. An S-corporation is the alternative that | | | | limitation on the number and types of shareholders |
| provides both financing options and flow-through | | | | allowed in S-corporations may affect financing options, |
| taxation; however, to be treated as an S-corporation, | | | | such limitations may have less practical importance |
| your business must do the following: | | | | than the limitations on financing options created by |
| • Incorporate the Business - As with a regular | | | | using a limited liability company or a limited partnership. |
| corporation, referred to as a C-corporation, an | | | | Accordingly, S-corporations' tax benefits, management |
| S-corporation must prepare and file Articles of | | | | structure and transferability of shares may provide the |
| Incorporation with the state, prepare and operate | | | | benefits that your business needs in an entity that also |
| under Bylaws, operate under a Board of Directors and | | | | provides you with limited liability. By considering your |
| corporate officers, and engage in corporate formalities. | | | | business's options and choosing the best available |
| • File an S-Corporation Election Form - To be eligible | | | | business form, you will ensure that you take |
| for S-corporation tax treatment, the corporation must | | | | advantage of available opportunities. |