Many business owners in this new economy are facing the difficult decision of whether to keep their businesses up and running or to cut their losses and dissolve their companies now. Although there have been several companies dissolving their businesses in the past year, there have also been new companies formed. Whether forming a new company or dissolving an existing one, as with everything, there is a right and wrong way to do it. Furthermore, if there is existing business, there is the all important step of maintaining the company in a way that will put the owner in a better position to prevent successful legal suits against him or herself.
Forming a New Company
In forming a corporate entity, you should first decide which corporate entity is right for you. The most commonly formed entities in Nevada are the S-Corporation and the Limited Liability Company (LLC). Both the S-Corporation and the LLC, if properly formed and maintained, offer protection to owners from the company’s liabilities.
In the case of an S-Corporation:
• Owners are called shareholders and hold stock in the company.
• The company must hold annual meetings and keep minutes.
• The company is run by a Board of Directors.
• Bylaws will govern the operation of the company.
Whereas, with an LLC:
• Owners are called members and hold membership interests in the company.
• No annual meetings or minutes are required.
• The company is run by the managers or managing members.
• The company operating agreement governs the operation of the company.
Both S-Corporations and LLC’s are formed by filing articles with the Secretary of State. Within 30 days of filing the Articles, the company’s initial list revealing the officers/directors (of a corporation) and the managers (of an LLC) must be filed. Both entities also have “pass through” taxation, which means the owners are not taxed twice (once at the corporate level and again on the owners’ individual returns), as is the case with a C-corporation. Rather, in an S-Corporation and an LLC, the taxes are only reported on the owners’ individual returns.
Maintaining your Company
Maintenance of a company is just as important, if not more important, than actually forming the company. The steps below, although not an all-inclusive list, offer some insight on how to keep your company running smoothly.
• Every company in Nevada has to have a registered agent. This is either an individual or a company/firm that will accept service of process on your company’s behalf and receive any required filings from the Secretary of State.
• Maintain company records and accounts in accordance with the governing documents of your company, and maintain business and personal accounts separate from each other.
• Follow company procedures as set forth in your operating documents.
• Keep your company in good standing. This can be monitored through the Secretary of State web site, www.sos.state.nv.us. If your company is in default, many times, it is due to failure to file the company’s annual list. This can be remedied by updating the records and paying a fee to the Secretary of State.
Dissolving your Company
Many business owners do not realize that certain steps must also be followed to properly dissolve a company. When dissolving a company, you should;
• Follow the procedures set forth in your operating documents, such as making distributions and filing final tax returns.
• Prepare a written document that indicates that the dissolution is authorized.
• Establish a reserve account. This will contain funds that are set aside for any known or unknown liabilities for which the company may be liable after the dissolution, but before any claims period expires.
• File Articles of Dissolution with the Secretary of State.
Improperly forming, maintaining or dissolving your company could jeopardize the very reason for forming a corporate entity, that being protection from personal liability.