Pros and Cons of Running a Nevada LLC

Limitation of liability

LLC owners (called members) are not personally liable for the debts of the business, including debts from most lawsuits against the company. A creditor of the business cannot go after the personal assets (home, car, bank accounts, etc.) of a member.

A corporation, limited liability partnership (LLP), and limited liability limited partnership (LLLP) also can provide limited liability, but come with different pros and cons. A limited partnership (LP) protects the limited partners (often investors who are not involved in day-to-day operations), but not the general partners who create and run the business. There is no protection for sole proprietors or for partners in a general partnership.

Pros: LLCs protect your personal assets from business liabilities in most cases.

Cons: LLC members can still be held personally liable in some circumstances.

Tax treatment

For federal tax purposes, an LLC has the most flexibility as to how it's taxed. A single-member LLC can choose to be taxed as a sole proprietorship, an S corporation, or a C corporation. An LLC with two or more members, also known as a multiple-member LLC, can choose to be taxed as a partnership, an S corporation, or a C corporation. The choice is best made in consultation with a tax expert.

Unless C corporation treatment is elected, all LLC profits are passed through to the members. The members pay federal income and self-employment tax on their share of the profits, even if they do not actually receive any profits. There is no Nevada individual income tax. However, all businesses, even sole proprietors and general partnerships, are subject to the Nevada Commerce Tax if their annual revenues exceed $4 million.

Pros: Flexible options for taxation.

Cons: It can be confusing to identify the best taxation option without professional guidance.

Flexible ownership

There are no restrictions on the number of members of an LLC, whereas an S corporation is limited to 100 members. A C corporation can have more members, but will be subject to double taxation and more regulation regarding its operations.

Pros: You can choose the best management and ownership structure for the circumstances of your business, and how much various stakeholders want to be involved.

Cons: Managing member roles and expectations can be complex without a solid operating agreement.

Complexity

An LLC has less complexity than a corporation. Forming an LLC in Nevada requires that articles of organization be filed with the Nevada Secretary of State. LLCs can be set up very simply, but can grow in complexity as more members become involved, if you choose to use corporate tax structures, and if you start expanding into other states.

Pros: LLCs have fewer reporting requirements and regulatory oversight than corporations. They can be set up in simple, straightforward ways.

Cons: An LLC involves more complexity than a sole proprietorship or general partnership, neither of which is subject to state registration requirements.