There are pros and cons to structuring your business as a Nevada LLC (limited liability company). LLCs are seen as having the limitation of liability of a corporation but with more tax benefits and less complexity. However, it's not quite that simple. These and other factors will be discussed in comparison with other ways of structuring a business.
Limitation of liability
LLC pros: 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 the LLC has other advantages that will be discussed below. A limited partnership (LP) protects the limited partners, 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.
LLC cons: None.
LLC pros: 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 Commerce Tax, if their annual revenues exceed $4 million.
LLC cons: None.
LLC pros: 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.
LLC cons: None.
LLC pros: An LLC has less complexity than a corporation. Forming an LLC in Nevada requires that articles of organization be filed with the Secretary of State. LLCs are not required to hold annual meetings or to keep detailed minutes; however, a corporation is.
LLC cons: An LLC involves more complexity than a sole proprietorship or general partnership, neither of which is subject to state registration requirements.
LLC pros: An LLC is cheaper than a corporation or LLLP. Nevada LLC fees for registering a new business are $425, consisting of $75 for articles of organization, $150 for a list of members, and a $200 business license. The LLC must submit an annual list of members and pay $150. These fees are roughly the same for an LP or LLP.
Corporations pay a minimum of $725 for initial registration, which increases if more than $75,000 in stock is authorized. LLLPs pay $450 for initial registration, and $150 or $200 per year, depending on how they're organized.
LLC cons: An LLC is more expensive than a sole proprietorship or general partnership, since neither of these other types of businesses is required to register.
A registered agent is a person or company that is designated to receive official legal documents for a business, such as subpoenas, lawsuit papers, and wage garnishments.
LLC pros: There is no advantage to having a registered agent, although it may be a convenient way to be sure legal documents are received and handled properly.
LLC cons: Unlike a sole proprietorship or general partnership, an LLC is required to have a registered agent. Hiring an outside registered agent will cost from $40 to $500 per year, depending upon the agent you hire. A registered agent is required for corporations, LPs, LLPs, and LLLPs.
Ability to raise capital
LLC pros: An LLC may find it easier to raise investment capital than if it were structured as a sole proprietorship or general partnership. Neither of these other forms of business can take on investors without making them a partner, but it is possible for an LLC to add new members without giving them a full say in management.
LLC cons: Unlike a corporation, an LLC cannot issue shares of stock. Any new investor would need to become a member of the LLC, which is a more complicated process. Furthermore, many outside investors consider LLCs risky, and prefer to invest in corporations.
Also, banks and other lenders may be more reluctant to loan directly to an LLC than they would to a corporation. Members of the LLC may be required to personally guarantee a loan, which eliminates personal asset protection as to such loans. However, lenders may also require a personal guarantee from the owners of a small start-up business formed as a corporation.
Nevada claims to offer a business-friendly environment to attract businesses from other states; however, Nevada's registration fees are far from the cheapest in the nation.
Whether Nevada LLC benefits will be helpful to an out-of-state company depends upon several factors, such as the number of states where the company will operate and the cost of registering in each state. If you are considering registering as a Nevada LLC, you should compare Delaware vs. Nevada LLC benefits, and Wyoming vs. Nevada LLC benefits.
It's important to consider carefully the type of business you want to run. Before deciding on the structure for your business, visit the Nevada Secretary of State's businesses website for more information.
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