Among the most important decisions that a business owner has to make is choosing the right business entity structure and location. In some cases, it makes more sense to organize your business in your home state. However, it is not required. You can select the right state that will give your company the most benefits.
What Is An LLC
When choosing a business entity structure, most new business owners opt for a limited liability company (LLC) because of the several benefits that come with it. Generally, it combines the liability protection that a corporation offers and the flexibility of a sole proprietorship or partnership. The personal assets of the owners, who are also known as members, will have protection against the debts of the company.
Additionally, LLCs are subjected to the formalities that corporations require. Since there are no shareholders, you do not have to conduct shareholders’ meetings. There will also be no board of directors since there are no directors necessary. However, while taking and keeping minutes of every meeting is not a requirement for LLCs, doing this could help protect your business.
When it comes to taxation, an LLC can choose how the Internal Revenue Services (IRS) will tax the company. By default, the IRS treats a single-member LLC as a sole proprietorship for tax purposes. Meanwhile, it taxes a multiple-member LLC as a partnership. However, LLCs also have the freedom to choose to be taxed as a corporation.
What Makes A Nevada LLC A Good Choice
Through the years, Nevada has become one of the states that small businesses and startups prefer, so forming a Nevada LLC may be a great option for you. The state offers various advantages. Here are some of them:
Nevada has strong privacy protection: One of the benefits of running an LLC in this state is you can expect privacy protection. Unlike other states, Nevada does not require you to provide a list of your members. That means that LLC owners can stay anonymous. Your information will not be part of public records. The level of privacy in the state also permits LLCs to issue membership for capital, personal property, services, or real estate.
There is no IRS information sharing: The state does not have an information-sharing agreement with the IRS, so it does not have to provide personal or corporate financial records to the agency. Some entrepreneurs use this to implement certain tax-reduction strategies.
There is a charge order protection: Generally, creditors can only go for the ownership interests of an LLC member legally through a charging order. This order will direct the company to pay the creditor any profits or distributions that are supposed to be given to a specific member. However, this will not have an impact on the company’s management. It only affects the financial rights of the debtors, so while a creditor can acquire a charging order, they cannot force an LLC to make a distribution. The order cannot also make a court sell or dissolve a company to pay off debts. That is how charging order protection works. The debtor will not be able to take distributions directly out of the LLC until the payment of the settlement. The charging order protection is one of the factors that make Nevada one of the friendliest states for LLCs.
It is relatively easy to form and maintain a Nevada LLC: Typically, forming a Nevada LLC is quick and easy. You can contact a third-party organization like DoMyLLC and leave the filing to a team of experts. You can even form one if you are the sole owner. You can have an unlimited number of owners, and none of them have to be residents of Nevada. LLC members can also appoint someone to stand in for the publicly recorded company manager.
You can enjoy tax benefits: When it comes to taxes, Nevada stands out among other states. You do not have to worry about state taxes on LLC ownership. The state does not impose franchise, personal income, inventory, gift, business, and occupation taxes. Payroll taxes are only 0.7% of the gross wages. Typically, the combined state and federal taxation average is around 45%. These tax breaks can become significant, depending on the state of residency. Since LLCs are pass-through entities, you will have to pay taxes on where you live. There will be no additional tax filings within the state.
There is less risk, time, and cost for commercial litigation in Nevada: Nevada law minimizes the need for extensive LLC formalities. Because of this, the risk of penetrating the company shield that comes with it is also minimized. The risk of litigation is lessened as well. The state offers priority business hearings, which reduces the time and expenses for litigation.
Nevada LLCs are allowed to offer stocks in exchange for a variety of things: LLC members can receive or offer membership in the company in exchange for services, leases, real estate, and properties. While it may not be a choice for all types of LLCs, it can still be advantageous for those that can support this option.
Forming A Nevada LLC
Once you decide to do business in Nevada, you will have to register with the state. Doing this will legalize your operations.
To help you get started, here is a simple step-by-step guide to forming an LLC in Nevada:
Step 1: Choose the right name and follow state guidelines: The first thing you have to do is to come up with a name that reflects the values and goals of your company. At the same time, it has to be distinguishable. Make sure no other business entity in Nevada is currently using it. You can conduct a business entity name search to check the availability of the name. Under Nevada law, you also need to follow these guidelines:
- Your company name has to include the words “limited liability company” or any of its abbreviations.
- You cannot include any word that could confuse your company with a government agency.
- You cannot use certain restricted words unless you submit additional paperwork and have a licensed individual.
You can choose to reserve your company name for 90 days by filing a Name Reservation Request form with the Secretary of State.
Step 2: Appoint a Nevada registered agent: The state requires all companies to have a registered agent for services of process. It can be an individual or a third-party organization like DoMyLLC. Your registered agent has to have a physical street address in the state and be available during normal business hours. If you appoint an individual, you have to make sure they are at least 18 years old. If you choose a company, it has to be authorized to do business in Nevada.
Step 3: File formal paperwork: To register your business, you have to file Articles of Organization Limited Liability Company with the Secretary of State. The filing comes with a $75 fee. You will need the following information to complete the form:
- Your LLC name
- The name, address, and signature of your registered agent
- The dissolution date, if any
- The management style, either it’s manager-managed or member-managed
- The name, address, and signature of your company’s organizer
Additionally, you also need to submit the initial list of your members and managers and obtain a business license. The filing of the initial list costs $150, while the business license comes with a $200 fee. If you choose to file online, you will have to include these documents and the corresponding fees at the time of filing. If you submit in paper form, attach the documents and include the items and fees in the Order Description.
Step 4: Create an operating agreement: This document is not a requirement. It is an internal document that will establish the way you will run your LLC. It will set the rights and responsibilities of the LLC members and managers. It can help prevent any disagreements in the future.
Step 5: Get an EIN: If you have multiple members, you have to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). If you only have one member, you may also need an EIN if you plan on hiring employees.
For many new entrepreneurs, starting a Nevada LLC can be a bit complicated. You have to understand all of the steps and properly complete them to avoid any issues. If you need help with the process, contact DoMyLLC. Our team can handle the preparation and filing of paperwork for you. We offer personalized solutions to make sure that our services suit the needs of our clients. We also have business compliance services to ensure that your company remains in good standing status with the state.