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Li Law Group understands the challenges and rewards of running a business. We have helped many small and medium size business owners. Here is a list of business entities that are available in Nebraska.
What Types of Entity Are There?
There are 4 categories of entities available in Nebraska.
Limited Liability Company
Under the Corporation category, there are 7 types.
Domestic Non-Profit Corporation
Domestic Professional Corporation
Foreign Non-Profit Corporation
Foreign Professional Corporation
Nebraska Benefit Corporation
Under the Limited Liability Company category, there are 4 types.
Domestic Limited Liability Company
Domestic Limited Liability Company Professional Service
Foreign Limited Liability Company
Foreign Limited Liability Company Professional Service
Under the Partnership category, there are 2 types.
What Factors You Should Consider?
There are general factors should be considered when deciding which type of entity to form. These factors could include tax treatments, liability protection, stock issuance, going to be publicly traded, management style, purpose of business, and available funding.
Corporation v. Limited Liability Company
The most common types of businesses are corporations and limited liability companies. In comparing the two, the following general factors should be considered.
1. Personal Liability Protection
Personal liability protection is the primary reason to form a legal business entity. Both limited liability companies and corporations provide some degree of separation of owner liability and the business’s liabilities, shielding the owners/investors from the creditors of the business. This means only the money actually invested into the business stands to be lost, personal money and assets of the owners or investors are protected. However, there are always exceptions—notably, personal guarantees on debts, sometimes taxes, piercing of the corporate veil, personal negligence and fraud. Obtaining business insurance is another important method of liability protection. Both LLCs and corporations also have formalities which need to be respected in order to maintain the liability protection desired. Not maintaining these formalities can allow courts to disregard the legal identity of the entity and pursue the owner(s) personally to satisfy debts, this is known as “piercing the veil.” LLCs generally have fewer formalities than corporations. As an owner, you should not use the business funds or assets as your own, i.e. ensure you are writing checks from the business account only for business purposes. Also, make sure the business is properly capitalized, as court may question a business that does not have enough funds to pay foreseeable expenses. Corporations have additional formalities to maintain such as naming directors and officers, holding meetings, giving notices to shareholders, and keeping certain records (although both entities have biennial reporting requirements).
LLCs and Corporations receive different tax treatment: C-corporations have “double taxation” while LLCs can elect one of several treatments but generally have “pass-through” taxation. A single owner LLC is by default taxed as a sole proprietorship, meaning the IRS disregards the business entity entirely and all the income and losses are denoted on the owner’s taxes. When an LLC has multiple equity owners, a form, K-1 schedule, must be filed describing the equity division, but income and losses are still “passed-through” or attributed to the owners who then must pay tax on their proportional share. C-corporations are treated the same regardless of number of owners: income is taxed independently within the business and then any distributions to owners are taxable to the owners, thus a “double tax." LLC allows the owner to elect certain tax treatments by filling appropriate forms with the IRS at appropriate times. These options may include C-Corp, S-Corp, and partnership.
LLCs offer the flexibility to organize the management in various ways but do not require any particular structure. Corporations have a defined ownership and management structure among shareholders, directors, officers but can also be flexible in who makes decisions and how. An LLC could be set up with little formal management structure when a single person owns the entire business. However, it does become more complicated if additional owners want to join. In a corporation, a single person can hold the positions of a shareholder, a director, and an officer and effectively run the company by himself, but there are the formalities that need to be respected at each level. In a situation with multiple shareholders, you may maintain control at each level; however, common stock owners generally have some voting rights corresponding to the quantity of shares owned (preferred shares typically do not carry voting rights). In sum, both entity situations allow you to structure the management and ownership interests to provide you control of the business decision making.
4. Fundraising / Financing
The interests and desires of investors are appropriate considerations during the entity selection process. Founders may desire some control structuring the management, perhaps a veto or consulting power regarding major business decisions. Those preferences may be satisfied in either entity. Nevertheless, investors often prefer corporations because the equity rights, structure, tax treatment and laws are more standard and familiar.
5. Employee Compensation
Knowing how you intend to compensate yourself and others can influence your entity selection. As the owner of a corporation, you can pay yourself as an employee, taking a salary and receiving a W-2 tax form like typical employment. As an owner/member of an LLC, you are not treated exactly the same as an employee. Instead of a salary and a W-2, you would receive what is known as a “guaranteed payment” which would be reflected as a business expense on the year-end, annual accounting (K-1) when the income and losses are attributed to all the members of the LLC. You can receive dividends or distributions in both entity situations in addition or in lieu of a salary. When there is just one owner, these two entity scenarios play out substantially the same.
6. End Goal / Exit Strategy
The future goals or objectives of the business as well as the founder may be influential in selecting the proper entity. If the business foundation is to be developed then sold to a third party, a corporation often serves this goal better than an LLC. The rules of mergers/acquisitions are better established in the realm of corporations and corporate stock tends to be more marketable than LLC ownership interests. On the other hand, LLCs are generally easier to “wind down” or dissolve in the event that the business is discontinued as compared to ending a corporation. Also, it is easier to transition from an LLC to a corporation than from a corporation to an LLC, if some impulse requires a change of entity.
If you are in the process of starting a business, fill out the intake below.