Set up a Traditional or Series Limited-Liability Companies (LLCs) with an Experienced Las Vegas, Nevada LLC Lawyer
In our day and age limited-liability companies (LLCs) have largely replaced corporations as the entity of choice in Nevada, both as the best vehicle for doing business and for holding assets that may generate liability.
Nevada LLCs v. Corporations — Which Are Better?
LLCs have significant advantages over corporations on several fronts. Both are equally effective for protecting the owners from liabilities arising within the entity, such as a liability arising from a business conducted by the entity.
Where Nevada LLCs have a real advantage are liabilities going the other way — if someone has sued you individually and is trying to attach valuable assets held in your business. If it’s a closely held business, a judgment creditor of yours generally will be able to attach your business and all assets within your business if you have a corporation. The opposite result happens if you have an LLC instead of a corporation — your creditor cannot gain control of your business nor attach any assets held by your business.
Why Is LLC Better Than Corporation?
The key lies in the statutes. Under Nevada law, a creditor of yours only has what is referred to as a “charging order.” A charging order simply means that he can attach your membership (ownership) interest in your LLC and nothing else. This means that he can neither “pierce the veil” to attach any assets held in the LLC, nor does he gain any voting or other rights over the management or operation of the LLC.
Another advantage of an LLC for small-business owners is that your LLC can essentially be taxed any way you like: (1) as a “disregarded entity” for IRS purposes; (2) as an S corporation; (3) as a partnership; or (4) as a C corporation.
If you elect to be a “disregarded entity” with the IRS, you don’t even need to file a tax return for your LLC. All profits and losses are reported directly on your IRS Form1040 as if the entity didn’t exist. This can save you the cost of filing a separate income tax return for your LLC. Many people elect this for simplicity and cost-savings.
We recommend that you consult with your accountant or another tax advisor on which tax election makes the most sense for you in your individual situation.
What Can Creditor Do?
Not much. Essentially he is forced to sit on his hands and wait for you to make a distribution. It’s a very simple decision for the owners — distribute money and the bad guys get it, or don’t distribute anything and your creditor never gets anything.
But Wait, There’s More! K-O By K-1.
This is the part of the story where truth really is stranger than fiction. The caption here is “The IRS Is My Friend.”
Under federal tax law, if a creditor has attached your membership interest in your LLC, he steps into shoes for all tax purposes. This means that if your LLC generates taxable income, you can issue your creditor a K-1 and pass the tax liability along to him. Instead of receiving cash on his judgment, he gets “phantom income” which he must report on his individual income tax return. No creditor ever keeps his charging order in place after receiving a K-1 from you.
What Can I Use My LLC For?
The two most common reasons for creating a Nevada LLC are (1) to use in operating a business; and (2) to hold rental properties. We’ve already addressed the advantages of operating your business through an LLC instead of a corporation. An LLC can also be used to hold cash, securities and other investments free from the reach of creditors.
LLCs are ideal for holding rental properties and are generally considered to be the entity of choice for these. By holding your rentals in an LLC, you protect yourself from liabilities arising on the properties. Some tenants thrive on suing landlords for real or imaginary damages. Sometimes the liabilities arise from unexpected sources.
For example, I had a client who moved from her existing home to an upgrade home. She kept her first home to be used as a rental. Her first tenant was her 80 year old mother. I suggested that she create an LLC for her home because you never can predict what may happen. She declined. It was perfectly safe to have mom there, right? In this case, no. She called me several years later to tell me and was right – she should have set-up an LLC.
Mom had one of her octogenarian friends over for a visit. The friend slipped and fell breaking her hip. Mom’s friend had to sue my client as the owner of the home in order to make a claim against the insurance policy. The bottom line was that my client was personally liable for this injury and found herself named as a defendant in a lawsuit. The good news was that her insurance covered the damages. These stories don’t always have a happy ending.
Nevada: “The Delaware West.”
Delaware has long been recognized as a favorable place to incorporate and to do business. For those of us west of the Mississippi, Nevada is universally recognized as having the strongest laws to protect business, business owners, and anyone who has something and doesn’t want to lose it.
If you are looking to protect your business or your assets, look no further than Nevada.
Nevada Series LLCs
Series LLCs are the new kid on the block. Essentially, a series LLC allows you to create any number of “series” or compartments within your LLC. Each series provides complete asset protection as if it were a separate LLC.
Series LLCs have several advantages:
- You can create as many series within your LLC as you desire.
- When you create a new series within your LLC, nothing needs to be filed with the state, meaning that you can create a new series immediately.
- There is no additional filing fee required when you create a new series.
- There is no additional annual fee required for each series — just one annual fee for the LLC regardless of how many series you have.
- You can avoid having to file multiple tax returns.
Multiple Rental Properties
Series LLCs are the perfect fit for clients with multiple rental properties. For example, in days past I owned several rental properties. I created a separate LLC for each property to protect each one individually. Now, a single series LLC with multiple series, one for each property, does the trick quite nicely. Only one filing fee is required each year, a significant savings.
What if I Own Properties Different States?
Not a problem. A Nevada series LLC can own property within or outside of Nevada.
Do You Have More Questions About Series LLCs?
Robert L. Bolick, is an experienced Las Vegas, Nevada LLC lawyer with more than 30 years of asset protection and LLC creation experience. He offers free initial consultations.