Nova Taxation

Entity Incorporation

Business operations can be structured in several ways:

Understanding the differences in federal tax treatment is crucial.

Sole Proprietorship: Not a separate taxable entity. Business transactions are reported on Schedule C of Form 1040. The net profit or loss is transferred to Form 1040, and the owner reports all net profit.
Partnership: Not subject to income tax but must file Form 1065, reporting business activities and net profit.
C Corporation: Separate taxable entity, subject to double taxation. Income is taxed at the corporate level and again when distributed as dividends to shareholders. It files Form 1120.
S Corporation: Similar to a partnership, does not pay federal income tax. Net profit or loss flows through to shareholders' individual tax returns.

Decide whether to incorporate in the home state or another state. Home state formation involves ongoing requirements and fees.
Internal Requirements: Holding meetings, adopting bylaws, issuing stock.
External Requirements: Filing annual statements/reports, possibly paying a franchise tax.

Flexible business laws.
The Court of Chancery focuses on business law with judges, not juries.
No state corporate income tax for companies that don’t transact business in Delaware (franchise tax still applies).
Favorable tax requirements for companies with complex structures or many shares.
No personal income tax for non-residents.
Anonymity for directors, officers, and members.
No Delaware tax on shares owned by non-residents.

Choosing the right entity and state for incorporation can significantly impact future profitability and legal protections.

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