Nevada LLC formation offers many advantages, especially in comparison to other types of business formations in other states. Our lawyers at the Sutton Law Center, a Professional Corporation can explain to you how and why.
Nevada LLCs can offer superior liability protection to LLCs formed in other states. First, since LLC members do not have to be identified on any public record if they are not also managers of the LLC, it is possible for the LLC to have nominee managers and thereby closely protect the identity of LLC owners. This provides a significant aid to liability protection. Further, Nevada, unlike other states, offers the series LLC, whereby the assets from one business enterprise within the LLC may be protected from the liabilities of another business entity within the LLC. This is unlike the LLCs of other states wherein all of the assets of the LLC are subject to any of its liabilities. Finally, Nevada offers significant indemnification of the managers or members, as well as a clear separation between the company and its members and managers. All of these result in potential protection from individual liability.
While the LLC protects members personally from LLC liabilities, Nevada law also protects LLC assets from personal liabilities. Forming an LLC in Nevada enables members to take advantage of the fact that the charging order is the sole remedy for creditors to attack LLC assets to satisfy personal debts. This means that creditors can only get to a member’s share of any income of the LLC. The creditor cannot force a distribution from the LLC, which is only required to make distributions per the operating agreement.
Nevada LLC formation can avoid the double taxation commonly experienced with corporations. LLCs can choose to be taxed as a partnership, which means that the income of the LLC flows through to the partners who pay their individual income taxes based on the gain or loss of the LLC. Since Nevada does not have a corporate or individual income tax, this can result in a significant tax advantage. Furthermore, since Nevada does not collect income information relative to an income tax, it does not engage in information sharing with the IRS regarding the income of the LLC. Therefore, not only are there potential tax advantages, but there is also value in the privacy a Nevada LLC provides.
For more information or for help with Nevada LLC formation, call the Sutton Law Center, a Professional Corporation, at 775-824-0300 or toll free at 800-700-1430.
Many entrepreneurs consider Nevada a desirable location for business formation. The most widely publicized advantage of a Nevada LLC is the lack of state income or franchise tax, and as a result, no information sharing with the IRS.
What may be less commonly understood, however, are some drawbacks to Nevada LLC formation.
The organization fees for Nevada LLC formation are among the highest in the nation. Filing the articles of organization is relatively costly, but then the LLC must initially, and then annually, report its List of Officers and Directors for a fee which is currently much greater than the cost to file a comparable document for a California LLC, a state considered expensive to do business in. Moreover, the LLC must obtain and renew annually the State business license as well as any local business licenses that may be required.
While Nevada is considered a “privacy state” for the owners of an LLC, meaning that they need not be identified in any public record, this privacy does not extend to the LLC’s managers. Nevada LLC formation requires that names and addresses of LLC managers be disclosed (or the names and addresses of members of an LLC with no managers) in the articles of organization as well as the annual Lists of Officers, each of which is a public record searchable on the Internet or through Nevada’s Secretary of State. Unlike some other states, the owners of the LLC enjoy anonymity only so long as they do not manage the LLC, and the managers have no anonymity.
Liability of LLC Managers
LLCs have the option to protect their managers from liability to the same extent as officers of corporations. However, a vote of the majority of LLC owners can override this decision, thereby exposing LLC managers to liability.
Since Nevada has long been touted by the unscrupulous as a state in which to achieve illicit goals such as tax or creditor avoidance, the taint of that can affect the reputation of legitimate business.
More Information Regarding Nevada LLC Formation
For more information, or to discuss forming an LLC in Nevada or an alternative state, call the Sutton Law Center at 775-824-0300.
The Sutton Law Center Explains Your Options for Funding an LLC in Wyoming
You have formed an LLC in Wyoming. Now what? For most new companies, the next step is raising money. Even the best ideas and the best intentions will struggle to succeed without sufficient funding. The question you must answer is, where will this funding come from? Depending on your specific circumstances, you may have many options, including:
- Obtaining a traditional bank loan or line of credit. Many new businesses start the search for funding here. Be prepared for a mountain of paperwork; numerous requests for documentation; and, even after all that, potential rejection.
- Relying on personal or business credit cards. The dangers of high interest credit card debt are well known. If you choose this option, do so on a limited basis and always keep a close eye on your balance.
- Borrowing from your retirement savings. Beware: In addition to risking your long-term financial security, you may face penalties and fines for early withdrawal of these funds.
- Soliciting your family, friends and associates for a loan or investment. Because these individuals know you personally, they may be more willing than a bank or other large institution to take a leap of faith and invest in you. However, this personal relationship may be severely strained, if not permanently broken, if you are not able to repay these individuals.
- Expanding your LLC to include new members, who will contribute funds and share the risk of the business venture, along with the reward.
- Drawing on your personal resources and savings. Do you have assets (e.g., a home, a car, jewelry) you can sell for cash or use as collateral for a loan?
To obtain third-party funding, you likely will have to provide adequate collateral and guarantees. In most instances, you also will need a detailed business plan to instill some confidence in your ability to repay these individuals/entities and grow a successful business. Moreover, during the term of the loan (or, perhaps, as an inducement for the loan), the third-party may seek to participate in management; control disbursement of company funds; or obtain an ownership interest in the company. A comprehensive operating agreement will be necessary to deal with these issues. Third-party funding also may trigger SEC filing and reporting requirements.
The knowledgeable Wyoming LLC attorneys at The Sutton Law Center have decades of experience advising business owners. We can help you navigate the LLC funding process. Call us, at 775-824-0300, to schedule a consultation.