The West's tax heaven for businesses large and small
You've worked hard, paid your dues, and put your blood, sweat and tears into your small business. You're seeing the results of all your efforts in greater profits and growing assets. It's time to take it to the next level. It's time to go.... corporate!
Why form an LLC?
Most small businesses start out as Schedule-C sole proprietorships- individuals using their own money to fund their business, and keeping all the profit under their name and bank account. It's the simplest form of a business: you spend the money, you do the work, and you get the profits in return.
However, tying up your business finances with your personal assets put both you and your business at risk. If your business is sued, has business-related debt, or has to declare bankruptcy, creditors can come after your personal assets as the sole proprietor of the business. In matters of law, you ARE the business. Likewise if you financial issues in your personal life, your business could be at risk from entities trying to collect on your personal debts.
A limited liability company, as the name indicates, limits the liability of its partners to the business and its obligations, and vice-versa. It separates you from your business and creates a business as a discrete legal entity. Your home will not be foreclosed if your LLC goes belly-up, and your business will not have to be liquidated to pay your credit card bills.
But why Nevada?
Because it's a hidden gem of tax protection for businesses large and small! The state gets most of its income from legalized gambling, so Nevada can afford to be extremely business-friendly. Just a few of the perks of being a Nevada business:
- No state income tax. None. Zero. Zip. Just like Nevada state residents, Nevada companies are exempt from state corporate income tax, franchise taxes, gift or inheritance taxes, and share taxes. (It's important to note, however, that your home state will have different laws regarding how income is classified as resident or non-resident income, and you may not be completely exempt from income tax in your home state. Please consult your tax professional for further information.)
- Nevada has a dedicated business court based on the Delaware model that seeks to expedite business-related lawsuits to avoid undue disruption to your business.
- Registration and incorporation fees are relatively cheap; it can be as little as $400 to start up, and $125 for your annual business filing.
- Nevada allows single-member LLCs, whereas most states require two or more members to form an LLC. You can create an LLC in Nevada and still keep your business a one-man (or woman) show.
How do I get started?
- First things first- you need a name.
LLC names need to have "LLC" or "Limited Liability Company" in the name. This is to protect you in business dealings so that it's clear that the entity is entering into agreements, not the individual. For example, Peggy Sue can name the business after herself, but the business name MUST be Peggy Sue, LLC, and she must sign all business agreements "Peggy Sue LLC" moving forward to make sure she enjoys the protections afforded by LLCs.
2. Find a registered agent.
Nevada requires all LLCs to employ a registered Agent. An RA is an individual who has a physical Nevada address and is registered with the state to receive notices and in some cases be served with legal papers on behalf of the entity they represent. You can hire one for about $50 a year. Follow the link for a list of NV Registered Agents http://www.nvsos.gov/index.aspx?page=148
If you are a Nevada resident, you can be your own Registered Agent.
3. File your Articles of Organization.
The first bit of paperwork you need to submit is your articles of organization, which declare your intent to be a limited liability company, and who will be involved in the new entity.
To submit both the articles of organization and the initial list of members (step 4), you can either print, sign, and mail the manual forms, or you can file online at the website of the Nevada secretary of state.
To complete the Articles of Organization, you will need your LLC name, the names and addresses of your LLC members (it's okay if this is just you), and the name and contact information of your Registered Agent. Your Registered Agent will also have to complete a Certificate of Acceptance.
Submit your Articles of Organization and the Registered Agent Certificate of acceptance either online or by mail with your $75 fee. You can also have the processing of your registration expedited for a fee.
4. Submit your initial list of members and apply for a business license.
After you submit your articles of organization, you will be required to submit an initial list of members , which lists all members of the LLC and their role. This filing is due by the last day of the first month after you submit your articles of organization. You definitely don't want to miss the deadline, because the late penalties are steep!
The list of members is exactly what it sounds like: a listing of all members in the LLC. If this is just you, your job will be easy! One thing to note about filing your list of members is that you want to indicate that you and your partners are "managing members". This means that you have both a management and financial interest in the company
You will be required to apply for your Nevada business license at the same time as filing your initial list of members. There is no separate form for this- you are automatically put up for a business license when you file your list of members unless you claim an exemption from the business license requirement.
It will cost you $125 for your initial list of members, and $200 for the business license, and you can have the paperwork expedited for an additional fee.
5. If you have more than one partner (or even if you don't), create an LLC operating agreement.
Although not a legal requirement, it is critical that you create an operating agreement for the LLC if you have any partners besides yourself. An LLC operating agreement is a legal document between two or more parties that spells out what the roles, responsibilities, interests, and rights are of each. Any business with more than one partner needs to have one to head off future conflicts and put your business on secure legal ground. An operating agreement is a must-have to protect both your business and your relationships with your business partners.
Even if you are the only partner, having a solid operating agreement in place can help to solidify the case that your LLC is a separate legal entity from you in the case of lawsuit, bankruptcy, or other catastrophe.
That's it! You now have a limited liability company in the great state of Nevada. To ensure the legal protections afforded by an LLC remain in place, be meticulous about keeping your business and personal finances separate, and completing all annual filings on time.
If the process of forming an LLC still seems a bit too daunting, there are numerous legal services such as LegalZoom that can submit the paperwork for you and act as your registered agent. It can also be nice to know that you have customer support with expertise to walk you through some of the more confusing aspects.