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How Does A Nevada LLC Protect Your Assets?

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Small businesses will always have risks related to operations and personal assets. Luckily, there are plenty of ways to secure your assets, like turning your business into a limited liability company (LLC).

May 24, 2023
Author: NCH

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LLCs are popular for a reason. Aside from being the easiest entity to form and operate, Nevada LLCs provide the very best legal protection.  When set up properly, LLC’s can also save you thousands of dollars in taxes. 

If you’re planning to start your own business without leaving your assets at risk, this blog will discuss how Nevada LLCs protect your assets and their other advantages that make them popular setups for startups.

How Does A LLC Protect Your Assets

When you incorporate your startup, you create a clear distinction between you and your business. Once you have formed the LLC, state and federal laws will consider the LLC another “person,” separate from its owners. This means you will personally be indemnified, and cannot be held personally liable for any lawful acts of the LLC.

If your startup fails, creditors can only go after your business assets. They can’t stake any claims to your personal assets. Conversely, if you get sued personally, the plaintiff cannot attack your LLC. 

The same rule applies to your contracts. Any contract or agreement you sign on behalf of your LLC will protect you personally.

Limitations

Now, this may all sound perfect, but there are a few limitations you need to consider. For instance, courts could “Pierce the Corporate Veil” and hold you personally liable.  For this reason, you should always incorporate in Nevada! 

Once you turn your business into an LLC, you must file annual reports to your local government to maintain it. If you don’t file them on time, you could lose the status and the asset protection it comes with.

Another important limitation is that LLCs can’t protect you from willful misconduct and other criminal acts. This rule also applies to those who intentionally lie on their credit or loan applications.

Additionally, state jurisdiction for LLCs varies. Some states treat single-member and multi-member LLCs differently. The more members an LLC has, the stronger its asset protection is.

The good news is some states treat both types of LLCs equally. You’ll get the same robust asset protection even as a single-member LLC when you stay in Wyoming, Nevada, or Delaware. 

Other Advantages of A Nevada LLC

Besides helping you protect your personal assets, Nevada LLCs also come with other great advantages. 

Tax Benefits

LLCs don’t have a specific tax classification. Instead, they can choose how they want to be taxed by the IRS. For instance, they can adopt the same pass-through tax status as sole proprietorships or partnerships.

With this status, your company no longer has to pay corporate taxes. All of its gains, losses, and deductions will flow straight to you. You can include them in your personal income tax filing, and you’re done.

Most businesses prefer the pass-through status since it allows them more tax savings. Things will only change if you convert your company into a corporation. 

Unlike LLCs, corporations have to deal with double taxation. Any earnings they make will be taxed twice. It’s a major disadvantage corporations have.

Flexible Management And Ownership

Another excellent advantage to a Nevada LLC is flexibility. You don’t need to have a formal structure to start an LLC. Additionally, you’re allowed to run your company however you want to, so long as it’s indicated in your operating agreement. 

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Operating agreements detail how you want to run your company. The document typically outlines the rights and responsibilities of every LLC member, including how profits are divided.

Most states don’t require LLCs to have an operating agreement, but certain places do, like Delaware. This state requires LLCs to draft their agreements before or after they are formed.

Profit-sharing

LLCs are also allowed to divide their earnings however they want to. They’re not required to divide it according to the shares of each member as corporations do. Instead, they can elect how it will be distributed on their operating agreement.

This benefit may sound like a win on paper, but there are a few things you need to remember. For example, the IRS requires profit sharing to reflect ownership percentages. This regulation helps them ensure that you won’t try to avoid your taxes.

Some states also prohibit transferring management rights. A member can only sell or transfer their rights to manage the company with the consent of the other members.

Perpetual Existence

LLCs can live for as long as they want unless their articles of organization state otherwise. It will continue running even if you or one of your members decide to leave and retire. 

According to most state laws, an LLC can only be dissolved under the following circumstances:

  • A specific triggering event mentioned in the operating agreement happens.
  • All members agree to dissolve the LLC. 
  • A judicial or administrative action requests the LLC to be dissolved. 

In some places, an LLC act allows the death or resignation of the last member to dissolve the company. Still, LLCs can appoint new members to continue their operations.

Making The Most Out of Your Nevada LLC

There’s no denying that LLCs are some of the best entities a startup can take on, but it’s far from perfect. You can make the most out of its benefits by keeping your status active.

Since LLCs in Nevada are required to file their annual reports on the day of their anniversary, submit them a day earlier. Doing so helps you prevent missing your deadline and having your status revoked.

We also suggest hiring reliable registered agents like NCH. NCH is one of the leading providers of business formation services. Not only do we help our clients in building their companies from the ground up, but we also provide them with dependable registered agents. 

With the help of our registered agents, you no longer have to worry about missing your annual report deadlines. They’ll accept all of your legal documents and assist you in processing them on time. 

Learn more about what NCH can do for your business by visiting our website or calling us at 800-508-1729.

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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