Nevada Corp
LLC, C corp or S corp? Will be starting a small business with a family member?
I will be starting a family business with a family member and start it in Nevada and probably open up in Hawaii and possibly California and maybe even Arizona. Ran my own business for 20 years but just used my SS number and did not have a corp. Want to reduce liability. Is there any disadvantage to an LLC get sued or anything? Personal thoughts or experiences?
Although I am an attorney licensed to practice in California, what follows is not to be construed as legal advice, nor am I undertaking in any manner to represent you in a legal capacity. (Ok…now that the boring disclaimer is out of the way…) The question you are asking is not that simple, and this forum, while very good for quick information, is not really suitable for giving you a reliable answer to your question. Consider the level of investment on which you are about to embark, and then ask yourself if you would not be better served by getting this question answered by a knowledgeable professional. I will give you a quick overview, but I would urge you to consult with a good legal professional before you make your decision, because your individual situation could have a serious impact on your decision.
In general you choose an LLC over a Corporation if you have investors with differing investment profiles and you wish to customize the incidents of ownership to suit their particular need. Incidents of ownership include the following three factors 1) the right to share profits and losses; 2) the right to control the business entity; and 3) the right to distribution upon dissolution. In an LLC these are controlled by a contract called the Operating Agreement. In a corporation they are controlled by the number of shares owned. For example, if you have an investor who has high earned income, he may be willing to pay more for the investment if he gets a bigger share of the loss that he can apply against his income.
The downside of an LLC vs. a Corporation in California is that California charges a gross receipts tax to LLCs (up to a maximum of $11,000), whereas a corporation is not subject to that tax. If you are doing business in California you would be required to register your Nevada or Hawaii LLC or Corporation as a foreign LLC or Corporation doing business in California, and you will be subject to a minimum tax of $800 per year, whether you make a profit or not. Anyway…I hope this helps, and good luck in your new venture.