For Nevada LLC prices and State fees, please visit the costs page for forming an LLC in Nevada.
As the name implies, a Limited Liability Company offers members limited liability protection and certain tax benefits. Forming a Limited Liability Company (“LLC”) in Nevada is fast becoming a trend among entrepreneurs and companies that are looking for a management and business friendly environment from which to run their business. With no personal income tax, and with business-friendly, sweeping regulation signed into law in March of 1987, Nevada has transformed into a haven for corporations and LLCs seeking asset protection, low-taxation, confidentiality, and a business-friendly corporate/business environment. This legislation translates into a number of business-luring incentives, including the lack of state taxation of corporations, excellent flexibility in management and LLC formations, and decreased regulation. With this increased business-friendly flexibility, Nevada can offer a substantial advantage to you and your company.
Lets examine what some of these factors, advantages, and even disadvantages might be.
Forming a Nevada LLC
Forming a Nevada LLC can provide for an excellent business model to conduct business as a partnership while enjoying the same protections from liability and debt that a corporation provides. In addition to this limited liability protection, there are also substantial tax benefits to be garnered from the formation of an LLC. Once the election to form an LLC is made, it is imperative that a well-written Operating Agreement be drafted that specifically outlines the distribution methods, rights and benefits of members and the managing member, capitalization, and any other rights, duties, assignments and responsibilities necessary for the proper operation of the LLC. The Operating Agreement can be compared to the bylaws of a corporation, wherein a properly written one, and strict adherence to it, helps to ensure the “corporate veil” protection of the LLC.
A Nevada LLC allows for as few as one member or as many members as your company is willing to have, with no limitations on numbers, and no limitations with respect to types of stock. The company must select a managing member who is typically the figure head of the organization and is responsible for it’s management. The profits or losses of the business organization pass directly through to the Member's personal income tax return (“pass through taxation”), with no taxation at the LLC level. The net profit of the LLC is not considered to be income earned by the Members (though it can be for the Managing Member as a special “fringe benefit” treatment--see below), and thus is not subject to self-employment tax.
Advantages and benefits of forming a Nevada LLC
- Nevada is one of the most difficult states in which to “pierce the corporate veil.”
- A Nevada LLC allows for “multi-tiered” ownership wherein an S or C corporation can be a member--this can allow for substantial tax benefits, and increased liability protection.
- Nevada allows for “single member” LLCs.
- The LLC allows for the "special allocation" of profits--the disproportionate splitting of Member profits and losses (in different percentages than their respective percentages of ownership). This means that Members can enjoy the benefits of receiving profits (and writing off losses) in excess of their individual ownership percentage, so long as it is clearly delineated in the Operating Agreement.
- Nevada LLC members enjoy Limited Liability, which means they are mostly personally protected from any liability of the LLC and successful judgments, as well as from the LLC itself.
- Managing Members' share of net profit is considered earned income because the Managing Member is considered to be an active owner--therefore qualifying the Managing Member for special "fringe benefit" treatment.
- The Members' share of the bottom-line (“net”) profit of an LLC is not considered earned income, and therefore is not subject to self-employment tax.
- Members are compensated using either distributions of profit or guaranteed payments. A distribution of profit allows each member to pay themselves by merely writing checks--whenever they need the money (provided the business has the available cash). Guaranteed payments represent earned income to the members, thereby qualifying them to enjoy the benefits of tax-favored “fringe benefits.”
- The Managing Member of an LLC can deduct 100% of the health insurance premiums he or she pays, up to the extent of their pro-rata share of the LLC's net profit, because the profit is considered earned income. Note: If a member has earned income, he or she will also qualify.
- A Corporation can be a member of an LLC. This allows you to create an additional level of ownership, which is designed to create an entity that can offer such traditional “fringe benefits” as retirement plans and an additional level of protection from liability.
- As a Member, you can contribute capital or other assets to the LLC, or loan the LLC money to put dollars or value into the business. You can take dollars out by taking a repayment of your loan (plus interest), a distribution of profit or a guaranteed payment. If any of the members die, the LLC can continue to exist--subject to the unanimous positive vote on the part of all remaining members or a proviso in the Operating Agreement.
- Tax Advantages. Nevada does not collect personal, corporate, inventory, franchise, gift, business occupation or stock transfer taxes. And with the federal “check box” method of taxation, a Nevada LLC can choose to be taxed via the partnership model with “pass through” taxation. This can amount to a substantial savings to a business.
Nevada LLC Fees and Costs
Aside from the LLC formation Nevada State filing fee of $75, there is an annual report filing cost of $85 (this annual report is due the last day of every anniversary month).
If a judgment is awarded against the LLC itself, it may be levied, and LLC’s property seized or sold in payment, much in the same manner that a corporation would be treated. Conversely, if a judgment is awarded against a particular member, and with a properly written operating agreement stating as such, distribution usually cannot be compelled to satisfy a member’s judgment debt (this is why it is critical to have a well crafted operating agreement, you’re your protection be mitigated). Creditors or judgment debtors have to satisfy themselves with a “Charging Order” that grants them rights to distributions made by an LLC to a particular member named in the judgment. This gives them the rights to that distribution, but does not affect the rights, assets, or distributions of other members or of the LLC as a whole. These types of protections characterize the attraction to LLCs by potential investors.
It should be apparent that forming your LLC in Nevada offers a substantial amount of flexibility and benefits to your company. Protection from liability, asset protection, and taxation savings are all representative benefits of a Nevada LLC. Nevada will not only help you and your company enjoy the corporate benefits of limited liability, greatly reduced taxation and financial privacy, but with a diligent implementation and business development strategy, you can build your business into a highly competitive, investment-attracting entity.