If you are looking to start a Limited Liability Company (LLC) in the state of Nevada, and don’t know how to, then you have come to the right place!
There are a few notable steps for you to pay attention to which will cost greatly to your business in Nevada if you fail to do so.
Things such as an operating agreement, registered agent service, an Employer Identification Number (EIN), and much more will be explained throughout this guide.
In layman terms, you will need to liaise yourself with the secretary of state of Nevada to legally form a limited liability company, and have a proper business structure beforehand. Furthermore, you would also have to obtain a business license for your business in Nevada. It is just as simple as that.
This guide will bring you through the different types of business structures and also the entire process of forming a Nevada LLC step-by-step. So let’s begin!
Sole proprietorships are the simplest type of all the business structures. Most of the time, an entrepreneur with a small business will utilize this business structure before expanding or growing into other business structures, most commonly LLCs or partnerships.
Sole proprietorships are simple in the sense where they have less legal restrictions, while still retaining a profit. However, sole proprietorships also have unlimited personal liability when it comes to the debs and liabilities of the business, and termination of the business occurs upon the death of the sole proprietor.
General partnerships are formed after the agreement of each partner involved. The agreement should include a contribution of each partner, the distributions of profits and losses as well as the terms of termination. If a written agreement is not drafted, all partners are presumed to have equal shares in the losses and profits of the business.
A general partnership has unlimited personal liabilities for the businesses debts and liabilities.A limited partnership is formed when there exist one or more limited partners in combination with one or more general partners. Limited partners have limited personal liability.
On the other hand, there are alternative forms of a general partnership known as the Limited Liability Partnership (LLP) and the Limited Liability Limited Partnerships (LLLP) which involves filing with the Bureau of Corporations and Charitable Organizations of the PA Department of State.
LLP and LLLP statuses impart general partners with limitations and additional protection for personal liabilities from the businesses debts and liabilities.
Corporations are the most complex business structure. It is highly advised that the paperwork for incorporation be viewed by a legal advisor. This is to ensure that all legal consequences are considered before starting a business. Corporations limit the liability of the owners based on the shares held by individual owners.
Death or transfer of shares does not affect the corporation, unlike other business structures. Corporations require detailed record-keeping and regulation as they have double taxation for profits. Dividends earned are tax on an individual level.
There exist two types of corporations in Nevada, namely C corporations and S corporations. Both of which have different rules, with C corporations allowing federal income tax rules for determining income and S corporations following Nevada income tax rules for determining income.
What is an LLC?
An limited liability company is a non-business partnership with at least one person limitedly answerable for the business’ legally binding responsibilities and different types of liabilities. The structure of an limited liability company shows more similarity towards a corporation than to any other types of partnerships available.
An limited liability company can be formed with at least one owner, which allows them to operate as an limited liability company instead of a sole proprietor which limits the owner’s personal liability.
An limited liability company as compared to a corporation is very much different. An limited liability company will have managers who oversee all operations instead of having a board of directors and officers.
Furthermore, an limited liability company also has members instead of shareholders. These members are investors who can be considered as the owners of the company. These people can be individuals from various corporate bodies or from the initial list of managers. These are the people who own a part of the company through the subscription of shares.
Limited liability companies are different in general. People who start an limited liability company are owners of a sole proprietorship who wishes to grow and expand their business. Hence they convert their business model from sole proprietorship to a limited liability company.
There are many benefits for the owner of a sole proprietorship who wishes to expand their business to convert it to a limited liability company.
Below are the steps needed to form an limited liability company in Nevada
Step 1: Selecting a viable name for an LLC in Nevada
The first step to forming an Nevada LLC is to select a viable name for the limited liability company.
The name selected for the Nevada limited liability company must be unique and distinguishable from existing registered businesses in Nevada. Be sure to choose a catchy name that complies with Nevada’s State of Department naming requirements. Having a catchy name for your Nevada LLC will also render it easier to remember and searchable by your future clients.
Selected business names may be checked for availability at the Nevada Department of State business name database. In compliance with Nevada law, the selected business name must contain the phrase or words “Limited Liability Company,” “Limited,” or “Company”. There are some acceptable abbreviations of the phrases or words (Ltd., Co.).
In contrast, the selected business name must not contain words or phrases that would confuse said business name with the name of a government agency (State Department, Treasury of State, FBI, Department of State etc.). There are also restricted words such as “Bank” and “Attorney” which will require additional paperwork to be done if you are looking to have such words.
If the company name is available and a future Nevada limited liability company wishes to reserve a name after checking the availability of said name from the Nevada Department of State business name database, they may reserve the desired name with the Nevada Department of State for a maximum of 90 days.
Reserving a name can be done by filling a Name Reservation Request with the Nevada Secretary of State Department.
It is also advised to check if the selected business name has an available web URL in the event the business owner wishes to make a business website, which enables the LLC members to reserve the domain name to prevent it from being used by other entities.
Step 2: Appoint a Registered Agent in Nevada
To start an limited liability company in Nevada, a registered agent, also referred to as a Statutory Agent, must be appointed in the state of Nevada. The registered agent can be a Nevada resident above the age of 18 or a business entity that has agreed to accept legal documents on behalf of the limited liability company in Nevada.
The appointed registered agent must have a physical street address within the state of Nevada (PO Boxes are not valid). LLCs have the option to use their personal home addresses, the address of a relative, the address of a friend or the address of a Commercial Registered Office Provider (CROP), given that they all have physical street addresses in Nevada.
It is advised to use the address of a CROP as the appointed registered office/registered agent to keep the personal address of the owner off public records.
Having a registered agent is very useful in most situations as it helps you to lessen your burden during the formation of the LLC. Furthermore, having a registered agent will also allow you to focus solely on your business while they handle the formal matters. Registered agent services are highly recommended for those who have the capacity to spend on such a beneficial service.
Step 3: File the Articles of Organization
In order to register your Nevada limited liability company, the next would be to file the Articles of Organization with the Secretary of State. The Articles of Organization can be done via an application online or by postal services. The Articles of Organization is often referred to as the Certificate of Formation or Organization.
This is an important document that must be handed up to the Secretary of State in order to legitimise the formation of the limited liability company for $75.
The Articles of Organization must include the name of the Nevada limited liability company, appointed registered office, the names of all members, an effective date for which the Nevada limited liability company is formed and the list of services which your business will be providing.
It is worth mentioning that the Secretary of State Department has a filing fee of $75 for the Articles of Organization. The Articles of organization filed to the Secretary of State must be accompanied by a docketing statement as well.
The accompanying docking statement should include the name of the Nevada LLC, the name of the individual responsible for initial tax reports, a description of the LLC’s business activity, the Federal Tax Identification Number (FEIN) / EINand the LLC’s Fiscal Year End (FYE).
Both the Articles of Organization and docketing statement can be sent to the Secretary of State via mail or online. The Articles of Organization is a crucial step to take if you are serious about forming a Nevada LLC. If the Articles of Organization and the docking statement is not filed, it will hinder your process when you form an LLC.
Step 4: Write up a Nevada LLC Operating Agreement
Although it is not a requirement, it is highly advisable and a good practice that the Nevada LLC members draft an LLC operating agreement. Operating agreements are solely an internal and legal document, meaning it does not require filing with the Nevada secretary of state or the Nevada department of state.
The operating agreement of a business acts as a document to establish the power, duties, liabilities and obligations of each member of the business. This document serves as an outline for the ownership and operating measures of an LLC. Members of the business do have the option of not drafting an operating agreement.
A business that does not draft operating agreements run the risk of being insufficiently equipped to reach any settlements regarding misunderstandings over management and finances. A comprehensive and legitimate operating agreement ensures that business owners are all on the same side while also reducing the risk of overall future conflict.
The Nevada LLC would be required to follow Nevada’s default operating agreement if an operating agreement is not drafted among members. Hence it is strongly advised that the business organizers draft an operating agreement to ensure smooth operations.
Step 5: File for an Nevada LLC Employer Identification Number (EIN)
The EIN, sometimes referred to as a Federal Employer Identification Number (FEIN) or even Federal Tax Identification Number (FTIN) are nine-digit numbers assigned by the Internal Revenue Service (IRS) in Nevada. EINs are used when opening business bank accounts in Nevada, filing and managing federal and state taxes and when hiring employees.
If the owner of a sole proprietorship intends on expanding and growing their business into an LLC, they are required to obtain a new EIN in compliance with the IRS. Nevada Business owners can receive their EIN for free from the IRS in Nevada. Obtaining an EIN can be done online or via mail by the IRS in Nevada.
All LLCs with employees are required to have an EIN. A business with more than one owner is required to have an EIN as well.
Step 6: Maintaining the Nevada LLC
Maintaining the formed LLC in the state of Nevada is the next important step after the business is stable.
It is recommended that members of the business maintain good standing with the state of Nevada for as long as the business exists. Members of the business are able to apply for a certificate of subsistence when the business is still in existence as a matter of record in the Office of the Secretary of the Commonwealth.
Information regarding steps on how to obtain the certificate of subsistence can be found on the department of state website. Members of the business are also advised to keep personal and business finances separate as to avoid confusion during sorting. By doing so they are ensuring that they will not be personally liable for any business debts and liabilities.
Furthermore, in order to maintain your Nevada LLC after you have successfully formed it, it is advisable that you separate your personal and business assets. By separating your personal and business assets, your personal assets such as your home and car will not be at risk if your Nevada LLC is sued.
If your personal and business accounts are mixed, you are at risk of losing all your assets, and this is termed as piercing the corporate veil.
How to maintain the Corporate Veil After Setting Up LLC in Nevada
Now you may be wondering, how do I maintain the corporate veil? Which is why we will be covering the things that you should do to keep your Nevada LLC out of trouble. Let’s move forward.
A corporate veil is the general rule of thumb in law which states that a business entity can protect its owners from incurring any sort of liability personally.
All the debts incurred from the owner’s business will not be transferred over to him personally. This protection, in the context of varying business entities, acts as a shield for small business owners who just formed their LLC. This explains why it is so important.
However, starting up your business is not alone sufficient enough to ensure that you have the protection you need for your business. Creditors may be able to pierce the corporate veil if they are found in the following situations:
- The company has not enough funds
- The company and the owners do not carry a separate identity
- The company was found to have been involved in fraudulent activities
Therefore, it is important that you have the adequate start-up capital to cover all your future liabilities so that future creditors will not be able to sue you personally. Creditors who are looking to sue will always try and look for loopholes for them to get their money.
Capital aside, during your business days, it is important that you document all of your company proceedings for future references. You must also make sure to avoid signing agreements or documents without fully understanding the entire document to avoid future unwanted legal issues.
Dealings of the company should be carried out solely under the name of the company. Authorized members of the Nevada LLC must vary when they sign the document in order to clarify that your personal assets are a separate entity from your business.
Furthermore, you should always stay away from fraudulent activities to ensure that your business is not at risk of being sued. A business that has been found to have been involved in fraudulent activities will often find itself more vulnerable to lawsuits.
What are the benefits and drawbacks of starting an LLC?
The benefits of starting a Nevada LLC are as follows. Nevada LLCs generally do not need the extensive upkeep and recordkeeping of a corporation. The members of a Nevada LLC are not personally liable for business debts and liabilities if you separate your personal and business assets.
Furthermore, the business structure itself is not taxed as it is considered a pass-through entity unless the members of the Nevada LLC request to be treated as a C corporation. The drawbacks of starting an LLC would include the initial cost of starting an LLC being costlier than sole proprietorships and partnerships.
Besides that, members of the LLC are required to pay high federal self-employment taxes.
Nevada LLCs are also not able to issue stocks and hence they are not ideal for fundraising. Lastly, a high annual fee is incurred for LLCs in Nevada which have a high member count. Drawbacks aside, having an LLC in Nevada is a great option as it offers a balance between tax flexibility and legal protection for small business owners, not to mention how easy it is to form one in Nevada.
Alternative: Using Registered Agent LLC Formation Services
What if someone doesn’t want to go through the hassle of doing the research and filling up the legal work needed to form a Nevada LLC. What If an individual or group of individuals wish to start an LLC in Nevada, but do not want to go through the hassle and the trouble of filing everything by themselves?
Well, they do have the option of getting assistance from numerous Registered Agent company formation services in Nevada.
There is an abundant number of options in Nevada when it comes to choosing a registered agent in Nevada which provides the service to help with your company formation. Looking at the companies that are able to help with forming an LLC in Nevada would not limit our choices but it does give us some options to work with.
Among the most popular company forming services that help with LLC or business formation would include but is not limited to ZenBusiness, Incfile, LegalZoom, Legal Nature, etc. Questions might arise as to how using a company formation service is beneficial and what are the associated risks.
Among the benefits of using a company formation service, time conservation is one of the important ones. When forming an LLC by ourselves, we would end up searching for forms and documents to fill out. Even after doing extensive research, it is likely that we would miss out a form or two.
This can be easily prevented by using a company formation service.
Furthermore, most company formation services guide the owner on how to go about settling their first annual requirements. By settling these annual requirements, paying the fees on time, the individual using the company formation services can rest easy knowing that they are not risking the possibility of receiving a legal penalty for a late submission.
Learning from the first time will ensure future company owners in Nevada are ready to handle the maintenance of their own companies for future years. There are few if not no downsides to using a company formation service.
The main drawback is the cost of hiring the company formation service. If the individual(s) are not willing to pay the cost, they can of course opt to fill out the legal work themselves. In conclusion, it would be safe to say that opting to use a company formation service is the fastest and safest way to form an LLC in Nevada.
Choosing to use a company formation service also leaves more time and manpower to focus on the business instead of the logistics of forming the LLC itself.
Hopefully, this article has helped you in your pursuit of forming an LLC in Nevada. Though the article has mentioned key points that will help you along the journey with your business in Nevada, it is recommended that you contact a legal advisor in Nevada on how to proceed with the legal work required.
Contacting a legal advisor in Nevada will ensure that you are compliant with your current states laws as well as a hasty application process.
Frequently Asked Questions (FAQs)
How much does it cost to form an LLC in Nevada?
Secretary of State will impose a charge of $75 to file the Articles of Organization whereas business owners can reserve their LLC name with the Secretary of State for $25.
Regardless, managing and filing your own is the cheapest resort but the completion and submission of forms and fillings may be complicated and time-consuming. Alternatively, you’d explore to engage a lawyer but will form an expenses to your limited liability company.
Nolo’s Online limited liability company formation service can also complete the filings for your limited liability company at affordable packages which start with $49.00
Do I need an operating agreement for my Nevada LLC?
No, it is not required but it is highly recommended to obtain an operating agreement for your Nevada limited liability company.
An Operating Agreement will help to protect the status quo of your limited liability company, avoid any financial turmoil and prevent any form of managerial misunderstandings or miscommunications.
Starting a business correctly doesn’t have to be difficult. With over 15 years of experience consulting new businesses and start ups, Matthew is probably the best person to help you set a strong foundation for your business.