Nevada offers an extensive gaming culture which generates a lot of tax income for the state. Because of this, a Nevada LLC is able to take advantage of this structure by having limited tax liabilities. Since 2015, some of the advantages and disadvantages of forming an LLC in the state have been changed from what you can find online, so be sure to review each section carefully.
If you are considering a Nevada LLC, it is important to remember that you’ll be paying fees in all states where you decide to send articles of organization. You may be able to conduct business operations without a secondary LLC in some situations. Before you go through the trouble of managing multiple reporting structures, speak with a legal professional who is familiar with multi-state LLC requirements.
List of the Advantages of a Nevada LLC
1. The state doesn’t tax corporate profits or shares for small LLCs.
There is no income tax department found within the State of Nevada. That means you don’t need to worry about your corporate profits being taxed by the state. Not even your corporate shares or LLC ownership is taxed by the state. There is no franchise tax or personal income tax within the state either. That means the information they have about you is not shared at a national level.
2. There is a higher level of privacy with a Nevada LLC.
When an LLC is formed in Nevada, the owners and shareholders of a corporation are not part of the public record. That gives you an ability to stay private and anonymous, even though you’re applying to conduct business within the state. You’re even permitted as an LLC to issue stock for capital, personal property, services, or real estate – including leasing and options. The LLC directors determine the value of the transaction and Nevada considers their decision to be final.
3. Business disputes are litigated differently.
Nevada is a lot like Delaware in how it addresses disputes in the business world. It offers a business court which helps to manage disputes that may arise. Although the written opinions are not released to the public, which means binding precedents are not set, there is more predictability for businesses with a Nevada LLC compared to other states.
4. Charging orders apply to more situations in Nevada.
The sole remedy for creditors of owners of a Nevada LLC is a charging order. This order is issued by the court, directing the company to send its dividends or distributions to a judgment holder instead of the owner, shareholder, or member. Most states have this structure within their laws, but Nevada applies it to more situations. Although a multi-state issue may eliminate this advantage for some businesses, it could be useful in specific situations.
5. You’re not required to hold business meetings there.
Some states require you to hold business or board meetings in the state as part of the rules of being an LLC. Nevada does not make this requirement. You are allowed to have the headquarters of your company be in any state. Like most states, however, if you are located outside of Nevada, then you must have a registered agent who can be available for business correspondence during regular business hours.
List of the Disadvantages of a Nevada LLC
1. Forming an LLC in Nevada is more expensive than other states.
Although an LLC in Nevada is cheaper than a corporation, the fees that come with the business organization total $725 at the time of writing. That consists of a $75 fee for the articles of organization, a $500 business license, and a $150 fee for a list of the LLC members. That list of members must be submitted annually, with the fee applying every year.
2. The privacy rules do not extend to everyone.
Although the LLC privacy rules in Nevada protect shareholders and owners from prying eyes, there are no protections in place for officers, directors, or members. As part of the articles of organization, you are required to appoint at least one member as the initial director of the company. This documentation is part of the public record and available to anyone who is willing to pay the fee to get it.
3. The annual list of officers and directors is posted online.
You’re required to pay an annual fee as part of the list of officers and directors in a Nevada LLC. Once that information is submitted, the Secretary of State will post it on the website. Anyone can locate someone with a simple search with this information available to a public database. Owners can only stay private here if they do not participate in the company as a manager. This is unlike other states where no disclosure of officers and directors are required.
4. Some businesses may be taxed if they make $4 million.
Since July 1, 2015, Nevada has started taxing all businesses which earn gross receipts that total $4 million or more I revenue. There are also industry-specific taxes, sales taxes, and a modified business tax which may apply for some LLCs. If you are subject to the tax, then there are no deductions for expenses which are allowed to apply. The state looks at your majority ownership for taxation purposes, so if you own 10 Nevada LLCs which combined to earn $40 million in revenue, you would be taxed on the $36 million in revenues beyond the cap.
5. Multi-state litigation may disrupt the privacy standards in Nevada.
If you live in a different state than Nevada and are facing litigation, it is possible for a judge to decide to use the laws of your home state, not the laws of Nevada, as they apply to your case. Just because you incorporate there doesn’t mean you’re automatically getting the privacy protections or precautions against liability. To avoid this disadvantage, the only thing you can do is take effective precautions based on your home state’s incorporation statutes.
If you are conducting business in your home state only, then a Nevada LLC may not be the right choice to make. As a general rule, an LLC should incorporate in their own state first. If you’re operating an online business or plan to do business in Nevada, then a Nevada LLC might make sense. Keep the taxation guidelines and costs in mind to make sure there is value in making this investment.