A Limited Liability Company (LLC) – is a very useful business entity for estate planning, asset protection, operating businesses, and for holding investment assets. An LLC provides most of the benefits of a corporation, but is easier to maintain. Generally, with an LLC, you can adopt more flexible administrative and operational rules than are provided as part of a corporation. An LLC is essentially a hybrid business entity that has characteristics of both a corporation and a partnership. The two main characteristics of an LLC are limited liability like a corporation, and preferential tax treatment like a partnership.
LLC Operation – A significant benefit to an LLC is that its operation is much simpler than other business entities. An LLC does not have the same strict operational requirements of a corporation. The law does not require an LLC to maintain formal minutes, resolutions, and bylaws like a corporation. If the proper formalities are not followed with a corporation, then the corporate veil can be pierced and the owners may be responsible for the corporation's liabilities. However, the law sets forth more relaxed operating requirements for an LLC while still protecting its members from being individually sued for the liabilities of the LLC.
Tax Options – Members of an LLC can choose whether it will be taxed like a partnership, corporation, or in some cases, disregarded as a separate taxable entity from the members. The options regarding the tax treatment of the entity offer flexibility. By being taxed as a partnership, the LLC itself pays no income tax. This is called pass-through taxation, which allows the LLC to avoid the double taxation incurred by a corporation. Unlike the corporation, an LLC taxed as a partnership will not pay taxes on its earnings on a business level and then again on an individual level when funds are distributed to members. All of the income and deductions pass through the LLC and are reported on the members' personal tax returns. However, a LLC can also elect to be taxed as a corporation (either a C or S-corporation) if advantageous. Further, a LLC owned by one person can be disregarded for tax purposes and report the business gains or losses on the individual tax return of the owner.
Asset Protection –In addition to its tax planning and management benefits, the LLC can also serve as an effective asset-protection strategy in two important ways. First, members are protected from the liabilities and obligations arising from the assets and/or activities within the LLC. For example, if a person slips, falls and sustains injuries while on a property owned by the LLC, the members of the LLC and their personal assets can be protected from any liability arising from the occurrence.
Second, Nevada law provides protection for assets and property held in an LLC from liability which arises outside the LLC. For example, assets owned in an LLC can be insulated from personal liability sustained by a member of an LLC due to a car accident for which the member was at fault. This is due to the fact that Nevada law imposes severe restrictions on the ability of an LLC member's personal creditors to reach through the LLC and attach company assets to satisfy a member's individual obligation. These state law restrictions are among the most stringent in the country, and can make a Nevada LLC a potentially formidable barrier against its members' personal creditors.
Series LLCs –Nevada is one of a handful of states where an individual can form a series LLC. A series LLC is an LLC within which multiple, separate "cells" or "series" may be created to hold separate investments and properties. The unique and powerful advantage of a Nevada series LLC is that, by statute, the assets held in any one series are protected from the debts and liabilities (including lawsuits) relating to assets held in another series. This powerful feature can eliminate the need to form and maintain multiple LLCs in order to segregate multiple investments and properties from each other for asset protection purposes.
To illustrate its asset protection advantages, suppose a Nevada series LLC is formed, and within that LLC two series are created, Series "A" and Series "B". Series "A" holds a brokerage account consisting of stocks and bonds, and Series "B" holds rental property. Suppose further that the tenant occupying the rental property, or even a guest of the tenant, sustains a serious head injury by a falling ceiling fan and sues the LLC as the owner of the property. If a judgment is obtained against the LLC, only Series "B", which holds the rental property, would be liable for the judgment. Under Nevada law, however, the investments held in Series "A", as well as any other assets held by the company generally, would not be subject to the judgment, but would be protected from the liability. Series LLCs can provide significant protection without forcing investors to form a separate and distinct LLC for each investment and incur the annual costs to maintain multiple entities.
Nevada LLCs – Flexible and Powerful – Thanks to flexible organizational and operational rules, as well as exceptional asset protection features, the Nevada LLC has become the entity of choice for Nevada investors and business owners. To learn more about how a Nevada LLC can protect you, your investments, your properties, and/or your business, you are welcome to schedule an appointment with one of the experienced attorneys at Boyce & Gianni, LLP.
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