Limited Liability Companies

Incorporation Plans for Limited Liability

An LLC is a relatively new form of a corporate structure in the United States. In Europe, it has existed for over 100 years. The LLC or Limited Liability Company blends characteristics of a partnership with the liability characteristics of a corporation. Most notably, you can choose to have your LLC taxed as a sole proprietorship, partnership, C or S corporation. At the same time, your LLC retains the asset protection benefits (ie limited liability) just like a corporation. LLC's were first authorizedby Wyoming in 1974; Nevada in 1991; and California in 1995.

One of the key aspects of your LLC is the need for multiple shareholders. If you are the only shareholder of the LLC (an LLC shareholder is called a member), the LLC does not afford the maximum asset protection. If the business is sued, all the creditor can take is the business assets. However, if you are sued personally (ie a car accident, etc.) -- the creditor can take your membership (shares) in the LLC. Courts have ruled that a "single member" LLC is not afforded the same protections. Therefore, it is strongly recommended that you have at least two members for your LLC. Your spouse cannot be the 2nd member to satisfy the test, as you are considered the same "legal" person in a lawsuit. You need to find an unrelated party (non-spouse, non-child) to hold the shares. Of course, the 2nd shareholder (member), can holder a very small proportion of the shares -- they just have to hold something.

When you have a multi-member LLC, and you are personally sued, the creditor can only get what is called a "charging order". A charging order entitles the creditor only to the DISTRIBUTED profits of the LLC. Since you control the LLC, you may find that when a creditor arrives -- that the LLC might earn profits, but distribute very little or no profits. This is called charging order protection.

In addition, the record keeping requirements for LLCs are somewhat less time consuming than for corporations. We still recommend thorough record keeping for your LLC, but it is not carved in stone as much as corporate record keeping.

In summary, the LLC is an easy-to-form corporate structure that will protect your assets and allow you to structure your tax affairs to your best advantage. The use of Nevada to form your LLC allows for many benefits not available in other states as described in the table below.

Why is Nevada one of the most popular states for LLC incorporations? Because corporations located in Nevada have a number of unique benefits. When these benefits arepackaged together, they make Nevada the best place to incorporate your business.

• No state income tax
• No tax on corporate shares
• No franchise tax
• Minimal annual fees
• One-person corporation is allowed
• Stockholders are not revealed to the state.
• Bearer stock can be used.
• Nominee shareholders are allowed.
• No minimum capital requirements.
• Meetings may be held anywhere.
• Officers, directors, employees, and agents are protected by state statue.
• Doesn't collect corporate income tax information to share with Internal Revenue Service (I.R.S.)

This information site does not provide legal or accounting advice. For legal or accounting advice, please consult a professional such as a Certified Public Accountant or Attorney.