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.
