A Guide to Limited Liability Companies (LLCs)Limited liability companies (LLCs) have become the business entity of choice for small business. LLCs, like corporations, are separate legal entities. They have been described as a hybrid between corporations and limited partnerships. Arguably, they offer some of the best features of both. Among the most important attributes of an LLC under Nevada law is that neither the Members (owners) nor the Managers are liable for the debts of the LLC. That means that the personal assets of the Members and the Managers are subject to claims from the creditors of the LLC. For a further discussion of these features, click on the Asset Protection button on the side bar. Limited liability companies are now recognized in all states, and they can be formed in every state. However, the laws affecting LLCs are different in each State, and the laws of some states are more favorable to small business than others. The LLC laws in Nevada are among the most favorable for small business. It is possible to operate a Nevada LLC in every other state, although most states require a company from another state to register to do business in that state. In most cases that's a matter of filing the Articles of Organization from Nevada with the local Secretary of State, paying a filing fee, and paying any applicable local taxes. LLCs have two major and distinct sets of rights and powers.
The first component is ownership. Limited liability companies are owned by their members. Members generally have the right to a share of the profits of the LLC. Members have limited or no liability for the obligations of the LLC. Members have the right to select the managers of the LLC. The second component is management. In Nevada an LLC can be managed either by its members or by managers. The election to be managed by members or managers is a part of the Articles of Organization of the LLC. If an LLC is managed by managers, the power of management and control is separate and distinct from the ownership rights of the members. Mangers may, but do not have to be, members. Filing Articles of Organization is the first step in LLC formation.LLC formation is a relatively simple process in Nevada. It is necessary to supply the following information in the Articles of Organization: 1. Name of the LLC: This name must be different from the name of any other business entity filed in Nevada. It must include an indication that it is a limited liability company, such as "LLC." There are some words that can't be used without prior approval by a governmental regulatory body, such as "accountant," "bank," "trust," or "engineer." To check on name availability for a new LLC in Nevada click here. 2. The name and street address of the resident agent. Every business entity in Nevada which is registered with the Secretary of State must appoint a resident agent. The resident agent is the person or entity located in the State of Nevada which is appointed by the limited liability company to accept service of process if the LLC is sued. Also, the resident agent is the official liaison between the LLC and the Secretary of State. The resident agent must sign the Articles of Organization signifying that he accepts the responsibility to act as resident agent. If you would like information about the legal services, including resident agent services, provided by our law firm, please click here. 
3. An election must be made about the period of existence for the limited liability company. Most limited liability companies elect perpetual existence. 4. The name and address of each of the organizers. One organizer must sign the Articles of Organization. When creating a LLC for one of our clients, our firm often signs as the organizer. 5. Choose whether the LLC will be managed by the Members or by Managers. If managed by Members, you will need the name and address of each of the members. If managed by Managers, you will need the name and address of each of the Managers. If the Members are seeking a degree of anonymity for asset protection purposes, then the LLC could be managed by Managers. If a limited liability company is managed by Managers, it is not necessary to list the names of the Members. A Manager does not have to be a Member, unless required by the Operating Agreement. 6. Nevada does authorize the formation of a Series LLC, which allows the business activities of the LLC to be divided into two or more divisions. Each series can have different and independent members and assets. It's almost like having two or more limited liability companies operating under an umbrella LLC. There is a box to check of the Articles of Organization form to elect to be a Series LLC. Our law firm steers clients away from Series LLCs because the record keeping requirements are onerous and difficult to maintain. In our opinion it is better to have several separate limited liability companies rather than a Series LLC . To see the form which is prescribed by the Nevada Secretary of State for Articles of Organization, click here.
The Articles of Organization must be filed with the Secretary of State.The next step in the LLC formation is to file the Articles of Organization with the Secretary of State. There is a $75 filing fee which must be paid at the time of filing. For those who are in a hurry, the Secretary of State will give priority handling in consideration of an expedite fee. The expedite fee for processing within 24 hours is $125. For those who are in a BIG HURRY, there is a 2-hour expedite fee of $500 and a 1-hour expedite fee of $1,000. Your LLC will commence its legal existence on the date the Secretary of State files in the Articles of Organization. You shouldn't sign any contracts on behalf of the LLC or attempt to open a bank account for the LLC until the Articles are filed. The Operating Agreement is a critical part of the Formation of an LLC.The operating agreement is the second most important document in the formation of an LLC, second only to the Articles of Organization. The operating agreement governs all aspects of the operation of the limited liability company, including the rights and liabilities of the Members, the Members' pro-rata interest in the LLC, the division of profits, the rights and limitations of management, the assignability of Members' interests, member and manager meetings, buy-sell provisions in the event of death, disability or retirement, and just about anything else the members desire. It is important to have the operating agreement prepared and reviewed for the specific needs of the LLC by an attorney. A well drafted operating agreement can be worth its weight in gold in the event of future problems. If you would like information about the small business legal services provided by our law firm, including preparation of the operating agreement, please click here. Other matters to keep the government happy.There are 3 more matters you have to handle within a short time after you form your LLC. 1. You have to file an initial list of members or managers within about 30 days. This information becomes a public record, so whatever names or addresses you list become available to public scrutiny on the internet (for example, attorneys doing asset searches, vendors, and otherwise snoopy people. That's one reason why you should have your limited liability company managed by Managers. As you might expect, there's a filing fee of $125. You'll have to file a similar list once a year before the anniversary date of the filing of your Articles. You guessed it - there's a filing fee of $125. If you don't file the initial list or the annual list before the due date, the Secretary of State will declare your LLC in default. If the failure continues for a year, the Secretary of State revokes the charter of the LLC. For some reason, many small business limited liability companies seem to have difficulty getter their lists filed on time. If we are the resident agent, my office monitors the filings and nags the LLC to get the list filed. Again, if you would like information about the resident agent services provided by our law firm, please click here. 2. You have to get a Nevada state business license. Again, there's an annual fee of $100. My office assists our clients in preparing and filing the application for the Nevada business license.
3. Unless you are a single member LLC, you must get a federal employer identification number (EIN). Even if you are a single member LLC, you may want to get an EIN for privacy purposes - otherwise you have to use your own social security number as the tax ID number for the LLC. If you would like information about the small business legal services provided by our law firm, please click here. What happens after the LLC is formed?Now that you've formed a limited liability company, don't blow it by carelessness. • Remember that an LLC is a separate legal entity and that you have to treat it as such. • Keep your LLC funds separate from your personal funds. • Make sure your LLC is named in your business dealings and agreements. 
• When you sign on behalf of your LLC, make sure you sign using your title as "Manager" or "Managing Member." The same thing goes for your business cards - you are the "Manager" or "Managing Member," not the "Owner." In fact, get rid of "Owner" from your vocabulary. • It's a good idea to hold formal meetings of Members and Managers at least annually and to keep minutes of those meetings. • Remember to file your annual list of Members or Managers on time. • Sometimes it may be necessary to sign a personal guarantee. This introduces a whole new liability issue. It's important enough to deserve a page of its own. For more information click here or on the "Personal Guarantee" tab in the sidebar to the left. • If you have to go to court, you'll probably need an attorney. LLCs cannot represent themselves in Nevada, except in Small Claims Court. The same applies in many other states. Limited Liability Companies are Excellent Asset Protection ToolsThere are a number of different ways in which a business entity or its owners can be attacked. 1. An LLC can be attacked by a plaintiff who claims damage by reason of the assets or agents of the business. For example, if a person trips and
If the property were the only asset of an LLC, then only that property would be at risk in the lawsuit. Neither the Members nor the Managers of the LLC would be personally liable. Hopefully there would be adequate insurance to cover the damages. 2. The other asset protection scenario where an LLC is a huge asset protection tool is when a judgment is entered against the Member (owner) of the Limited Liability Company for something totally unrelated to the LLC. Under Nevada law the judgment creditor's sole remedy against the Member is to get a "Charging Order." A charging order is a Court ordered assignment of the Member's right to the profits of the LLC if and when they are distributed.
LLCs can be a chameleon for tax purposes.
For federal income tax purposes (as well as for most state income tax purposes) limited liability companies can elect how they will be taxed. They are a tax chameleon.The default tax treatment for a single member LLC is a "disregarded entity." That means that for tax purposes the LLC's income and expenses are reported on the Member's personal income tax return. (Husbands and wives living in a community property state are generally treated as a single member.) The default tax treatment for a multi-member LLC is a partnership. However, a limited liability company can elect to be taxed as a C corporation regardless of whether it is a single member or a multi-member LLC. Once having elected to be taxed as a corporation, the LLC can further elect to be treated as an S Corporation. To wrap it all up . . .LLCs are an effective and easy-to-manage business entity. It is fairly easy to prepare and file the Articles of Organization, but an attorney should be used to put together the total package including the Articles of Organization, the Operating Agreement, the initial and annual list filings, the business license, the EIN, the minutes, and the ongoing operation. Beware of those cheap online LLC formation services. They can do the bare minimum, but they don't provide the legal knowledge and advice of a licensed attorney. Return from Limited Liability Companies to the home page
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falls on a sidewalk on property owned by the LLC, the business could be sued for negligence in maintaining the sidewalk. If a person were to trip over an uneven sidewalk like this one and hit his head, the resulting damages could be hundreds of thousands of dollars.
