Many people always say that they want their own business, have an idea, or just want to be some kind of entrepreneur. Many don’t know what type of business they want; some have never even had the thought that there are different types of businesses. Many of people have to really sit down and figure out what they want for the future of their company. Starting NuProdigy Media, Inc. we sat and thought about the different things that we wanted for the company, including what type of projects, our main focuses, and what aspect of the film industry we wanted to focus on, it took a lot but we figured it out. The main two types of businesses are called Limited Liability Company (LLC), and Incorporation (Inc.); it’s just what fits you best in your company or organization.
The Corporation (Inc.) is an artificial legal entity, which while made op of a number of natural persons or other legal entities, has a separate legal identity from them. Also as a legal entity the corporation receives legal rights and duties. There are five legal rights that always exist for a corporation. First is the ability to sue and be sued (this gives the corporation access to the courts). Secondly, a corporation has the right to a common treasury (this gives the right to hold assets separate from the assets of its members). The right to hire agents (this gives the corporation the right to hire employees). Also has the right to a common seal (this gives the corporation the right to sign contracts). Finally as a corporation, you have the right to make by-laws (this gives the corporation the right to govern its internal affairs). As you can see so far a corporation is like its own person does its own thing like an individual, also having its own social security number called an FED-ID number.
There are two types of for-profit corporations: a C. Corporation and a Subchapter S. Corporation. There are some features that both corporations have in common.
The corporation is owned by shareholders and managed by a board of directors & managers. Members can be both a shareholder and a director or manager. Directors and managers can cause the business to authorize the business to create contracts, authorize loans, settle lawsuits, hire & fire and so on. All shareholders enjoy limited liability status. Filing documents with the state government creates the corporation. The corporation conveys ownership interests by issuing shares. “By-laws” will be created to dictate how the corporation will govern it.
There are really only two major differences between the S. Corporation and C. Corporation. The C. Corp can have an unlimited number of shareholders and the S Corp is limited to 75. And the C. Corp is subject to a double taxation. The corporation is taxed, and then the individual shareholders are taxed.
The Limited Liability Company (LLC) has become most small film production companies’ business entity of choice. In that respect, it is similar to a corporation, and is often a more flexible form of ownership, especially suitable for smaller companies with a limited number of owners. Unlike a regular corporation, however, a limited liability company with one member may be treated as a disregarded entity, so the member is often singled-out as a person performing the actions of the LLC. A limited liability company with multiple members is typically treated as a partnership for tax purposes, thereby avoiding double taxation.
There are some great advantages to selecting a LLC, some of them include: Its members own The LLC. No requirement of an annual general meeting for shareholders. No loss of power to a board of directors. Typically there is much less administrative paperwork and record keeping. The members enjoy the limited liability status. Only a state filing is required to form a LLC. In addition to cash contributions, members may also agree to contribute talent and services to the LLC, such as writing, directing, editing, etc.
Of course with advantages there are some disadvantages. Many states, including - Alabama, California, Kentucky, New Jersey, New York, Pennsylvania, Tennessee, and Texas, levy a franchise tax or capital values tax on LLCs. A franchise tax is a tax charged by some US states to corporations formed in those states based on the number of shares they issue or, in some cases, the amount of their assets. It may be more difficult to raise capital for an LLC, as investors may be more comfortable investing funds in the better-understood corporate form.
Now understanding a little more about the Corporation and the Limited Liability Company. It will now be a little easier to chose where you want to go as a company, the ins and outs, and the advantages and disadvantages. Choses wisely and remember there is no problem with being wrong; you can always convert back to one another later on. If you need further help, you can choose the path I chose and contact LegalZoom. They can help you with getting paperwork finalized and making sure that your legal at all times with the IRS. So get started know that you know what everything is get everything out of your head and on paperwork.