Capitalization Issues When Your Form A Corporation

Written by Phil Thow

The process of filing for a Nevada LLC or a Nevada Corporation is easy thanks to a number of online sites. You can easily choose a business name and entity and register your company in just a few minutes. An incorporator will take the paperwork from here and make sure you have everything organized properly in order to declare a Nevada Corporation or Nevada LLC and they will then file it with the state.

Once the paperwork has been filed for your Nevada Corporation, what is your next step? After the company has been registered in the state, you need to capitalize it. Here are some common capitalization issues you may face and what to do about them:

1. Disclaimer. When you are discussing capitalization, you will need a disclaimer from the state of Nevada or for your state. This way you know what type of rules have been set for you regarding cash contributions and other things like the debt to income ratio you can carry.
2. Tax issues. As you go about capitalizing your business, you need to find out what type of tax issues you may face. A good CPA will be able to guide you with this as capitalization does have several tax issues. The biggest advantage is the ability to dedicate all the repayment of loans from shareholders.
3. Inadequate capitalization. This is a common problem for many businesses as they tent to start off with the minimum capitalization amount which is about $1000. When you do this, you are flagging your company for an audit, especially if you bring in millions of dollars in revenue each year. Taking the minimum can cause you to lose protection for your personal liability, which leaves your home vulnerable to the courts. The IRS wants to see higher capitalization of corporate entities as this shows you are properly deducting loan repayments, dividends, and many other things.

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