Are There Advantages to Filing for an LLC in Nevada or California?
For California residents, going across the border to create a Nevada LLC doesn’t provide an advantage in most cases. In fact, it may end up being more expensive with no real benefit.
Setting up a legal entity to own your business, instead of holding it as a sole proprietorship, is a good idea. It’s a way to create a layer of protection for your personal assets in the event of unexpected legal or financial problems with your business. If the entity is formed correctly and the ongoing formalities are carried out, your personal assets should receive a measure of protection from business creditors, including judgment creditors.
LKP attorneys form business entities for our clients, including LLCs (and series LLCs). Call us at 702-333-1711 today to learn more.
What is a Limited Liability Company (LLC)?
An LLC is a business structure that combines certain aspects of a partnership and a corporation. LLCs benefit from the flow-through taxation of partnerships, and in the case of single-member LLCs, the LLC may be even “disregarded” for tax purposes. The LLC also offers limited liability to its members, similar to that of corporate shareholders. The owners of an LLC are called its “members.” One person can form an LLC and own the LLC as its sole member.
Which Entity is Right for Your Business?
Instead of operating as a sole proprietor, should you choose to form a legal entity to operate your business, you will need to decide which type of legal entity will work best for you. There are several types of legal entities, including general partnerships, limited partnerships (LP), limited liability partnerships (LLP), limited liability companies (LLC), and corporations.
LLCs are usually ideal for businesses with only one or a few owners. LLCs are operated under the terms of an “operating agreement” decided upon among the members, and they are typically managed less formally than corporations.
Absent certain uncommon tax elections, LLC profits and losses pass through the entity to its owners. When passed through, such items of income, loss and deduction are reported on the individual owners’ income tax returns and, unlike corporations, are not reported at the entity level, thereby avoiding the double taxation that is often at issue with a corporation.
An LLC may not be a good choice if outside investment is important because laws protecting corporate investors are often more appropriate.
California Taxes Aren’t Based on Where the Business Entity is Formed
Nevada LLCs don’t pay state income tax in Nevada, because the state has no income tax (but there is a relatively small commerce tax (based on the type of industry of the business) on those businesses grossing more than $4 million annually). For this and other reasons, California business owners will often inquire about forming a Nevada LLC to operate their California business. The problem is, if the business will continue to operate in California, the Nevada LLC must qualify to do business in California and at a minimum, pay the California franchise tax.
In other words, if you operate a business in California, creating an LLC under Nevada law will not avoid state taxes and fees in California. California looks to factors such as where the business is operated, where it is managed and where its operating assets are located, rather than the state of formation of the legal entity, and imposes state taxes and fees based on such factors.
California vs. Nevada LLC
While most requirements for forming an LLC in Nevada and California are similar, the fees differ. Below is a list of some of the requirements and considerations for forming LLCs in each state:
- You must choose a name for the LLC. You should search to see if your desired name has already been used or if it is still available.
- You’ll need to choose a registered agent in the state of formation. The registered agent will receive legal or governmental correspondence on behalf of your business. You can pay a commercial registered agent service to perform this function, or you may choose an individual (often a member of the LLC) living in the state where they entity was formed.
- You must file the completed forms and pay the required fees. You can file online, through the mail, or in person. The Nevada form to file can be found on the Nevada Secretary of State’s website, and the California Secretary of State website has the required California documents
- Each renewal period, you will need to file an “annual list” (Nevada) or “statement of information” (California) along with the filing fee (California’s filing fee is lower)
- Every year, LLCs have a minimum $800 franchise tax in California, while in Nevada there’s a $200 business license fee Filing fees and annual costs can increase or decrease over time.
Contact a Business Formation Lawyer in Nevada
LKP’s attorneys are experienced in creating LLCs (and series LLCs) in Nevada. One size doesn’t fit all, so we talk to clients about their business needs and their plans for growth. There are legal, financial and tax issues to consider, so we make sure the entity is in our clients’ best interests.
If you or someone you know is considering forming an LLC in Nevada, whether in Las Vegas, Henderson, Reno, or Carson City, contact us for a free consultation using our online contact form. Or call us at 702-333-1711 to speak to an attorney experienced in forming LLCs (and series LLCs) in Nevada.
Attorney Kennedy Lee practices in all aspects of trust and estate law. He views all legal issues from multiple angles (e.g. from litigation to administration point of view) to provide a higher quality of service to our client.
