When you start a business you can choose from several types of legal structures. The structure you choose determines how the business will be taxed, if you are personally responsible for the business’ debts and more.
If you are going into business with others, you may consider forming a partnership. Partnerships offer simple tax requirements and, in some cases, liability protection. Nevada offers three types of partnerships, detailed below.
Taxes and Personal Liability
Most partnerships are considered pass-through entities. This means the income from the company passes through to the owners’ personal income. In Nevada there is no separate tax form required for partnerships. For information about federal taxes, see the Internal Revenue Service website.
Personal liability is the other important topic to consider when forming a business. Liability refers to how many of your personal assets are able to be seized when the business has to settle a debt. The reverse is true as well, meaning your business assets may be used to settle your personal debts.
The types of partnerships offered in Nevada are compared below, with information highlighting the differences in liability and tax considerations.
Types of Partnerships: Liability & Tax Considerations
General Partnership (GP)
The simplest form of a partnership, the general partnership offers no liability protection but also isn’t hindered by very many laws, offering maximum freedom to do business as you wish.
No liability protection, each partner is personally liable for all of the company’s debts
Your personal assets, such as your home or cash, can be seized to settle business debts
Income from the business passes through to your personal income, where it is taxed as income
Exempt from a lot of rules regarding how the business should be named, ran, and maintained—no need for lots of complicated paperwork
Limited Partnership (LP)
Limited partnerships are similar to general partnerships, but offer two levels of partners: limited and general partners.
- Limited partners are not allowed to manage the day to day operations of the business, but enjoy personal liability protection
- Limited partners are only liable for the money they’ve invested into the company
- General partners are fully liable for the business debts, but they control the day to day operations
- Taxed as a pass-through entity, like a general partnership
- Very popular with partnerships that want to attract outside investors that typically act as limited partners, protecting them from the company’s debts and obligations
Limited Liability Partnership (LLP)
In a limited liability partnership partners can’t be held liable for other partners’ mistakes, errors, or outright fraud. These types of partnerships are very popular with professionals that expect to take on a lot of liability risk (typically as the result of lawsuits), such as doctors and lawyers. For example, if three doctors start an LLP and one of them is sued for malpractice and loses a costly lawsuit, the other doctors won’t be personally liable to pay off that debt.
- Similar to a general partnership, but each partner is only liable for their investments like a limited partner in an LP
- Each partner is protected from the other partners’ debts and obligations
Limited Liability Limited Partnership (LLLP)
In a limited liability limited partnership, you find a blend of LP and LLP advantages. An LLLP has both general and limited partners, but they are all protected from each other’s debts, errors, and legal obligations. Like an LLP, the LLLP is popular with high-risk professions that also seek outside investment.
- Similar to an LLP where each partner is not liable for the others’ liability
- Two types of partners, general and limited partners, in which the general partners manage day to operations and limited partners are more like silent investors
- Taxed as a pass-through entity like a general partnership
Limited Liability Companies
If the idea of a partnership doesn’t appeal to you, consider starting a limited liability company (LLCs). Although slightly more complex to start than a partnership, and with more government oversight, the LLC is a business structure that offers the ease of a partnership with excellent personal liability protection.
How to Form a Partnership in Nevada
If you decide to form a partnership in Nevada, there are a few mandatory steps you must go through in order to properly create the partnership.
Step 1: Select a business name
Think of a unique business name that represents your business well and is appealing to the types of clients you want to attract. Bear in mind it will have to indicate the type of business you’re creating. For example, a limited liability partnership named “EFG Kludges” could be called “EFG Kludges, LLP.”
Step 2: File trademark on business name
In Nevada, you can protect your business name by filing it with the Secretary of State after checking to ensure the name’s uniqueness.
Step 3: Complete required paperwork
In Nevada, all partnerships except for GPs require the appropriate paperwork be filed along with the current filing fee.
General Partnerships (GP) – GPs aren’t required to file organizational paperwork in Nevada, but a formal, notarized partnership agreement is always encouraged.
Limited Partnerships (LP) – In Nevada, an LP must file a Certificate of Limited Partnership with the Secretary of State.
Limited Liability Partnerships (LLP) – Nevada law mandates that entrepreneurs file a Certificate of Registration Limited-Liability Partnership with the Secretary of State in order to form an LLP.
Limited Liability Limited Partnerships (LLLP) – Forming an LLLP in Nevada requires the filing of a Certificate of Registration of a Limited-Liability Limited Partnership with the Secretary of State.
Step 4: Determine if you need an EIN, additional licenses or tax IDs
If you plan on hiring employees, you’ll need to get an Employer Identification Number (EIN) from the IRS. Even if you aren’t hiring employees, an EIN is helpful for opening business bank accounts, credit cards, and more. It’s highly recommended you get one from the IRS.
Some partnerships need additional licenses from the state in order to do business. For example, plumbers, electricians, and other types of contractors usually need to be licensed to do business. Additional taxes may also be needed.
Step 5: Get your day to day business affairs in order
Once the Secretary of State has approved your paperwork and sent you a certified, stamped copy of the paperwork back, you’re able to do business. Here are a few things to consider as you get started with your business:
- You’ll need to open a bank account in your business’s name to keep your liability protection in tact (if your partnership type offers liability protection).
- You’ll need a physical address where the business can receive mail and legal notices.
- Make sure you have a partnership agreement on hand. This is a document that outlines how the partnership will be ran and includes details such as how to deal with partners that leave, adding new partners, changing the business, or shutting the business down.
When you are ready to start a partnership, LegalZoom can help you choose which one may be right for you. We can also file the paperwork to form your business, help you find a registered agent, and get you in touch with an attorney or tax professional.