LLCs and Series LLCs
Experienced Las Vegas, Nevada LLC Lawyers
Set up Traditional or Series Limited-Liability Companies (LLCs)
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 Is Better?
This is a subjective answer depending on what you prefer. Both are equally effective at protecting you as the owner from any liability arising within the entity. Both protect your business from anyone coming after you personally, such as if you were in a car accident. No creditor of yours can gain control of your business nor attach any assets held by your business.
Is an LLC Better Than a Corporation?
Under Nevada law for both LLCs and corporations, a creditor 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 or your stock in your corporation and nothing else. This means that he can neither “pierce the veil” to attach any assets held in your LLC or corporation, nor does he gain any voting or other rights over the management or operation of the entity.
The main 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 single-members; (2) as a “C” corporation; (3) as an “S” corporation, or (4) as a partnership.
If you have a single-member LLC, your LLC will be disregarded as an entity for tax purposes by default unless you elect to have the LLC taxed as a corporation. As a “disregarded entity,” you do not need to file a separate tax return for the income from the LLC. Instead, all income can be reported on your individual income tax return. This can save you the cost of filing a separate income tax return for your LLC.
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 a Creditor Do?
Not much. Essentially, a creditor of yours is forced to wait for you to make a distribution from your LLC or corporation. It’s a very simple decision for you as the owner — 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 or stock in your corporation, he steps into shoes for all tax purposes. This means that if your LLC or corporation 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?
You may use your LLC for just about any business purpose. 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.
Rental properties:
LLCs are ideal for holding rental properties and are generally considered to be the entity of choice in this regard. By holding your rentals in an LLC, and combined with a good insurance policy, 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 upgraded home. She kept her first home 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 I was right – she should have set up an LLC.
One of Mom’s octogenarian friends came 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. It is important to note, however, that the series is not in and of itself a LLC, but rather, a series of the 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 in Different States?
Not a problem. A Nevada series LLC can own property within or outside of Nevada just like a traditional LLC.
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