What are the Steps to Starting a Business in Nevada?
No matter where your business starts, before you open your doors you need to think, plan, and lay the groundwork. You can prevent a lot of trouble if part of your preparation includes addressing legal issues from the start and using the right type of business entity.
We help Nevadans start businesses by working with them on business formation and asset protection. There are many aspects to consider, including the best form of ownership to meet your objectives and to protect your personal wealth from business creditors. Call Lee Kiefer & Park at 702-333-1711 to start the conversation.
What Type of Business Are You Starting?
What will your business do? Will it:
- Provide products? Services? Both?
- If something goes wrong, how much of a risk is there someone will get hurt?
- Require employees, or can you start the business by yourself or with a few others?
- Just be you owning the business, or will there be other partners?
- Will you want others to invest in the business?
There are many issues to consider when starting a business. Legal concerns must be one of them.
Which Business Entity is the Best Fit?
There are different types of business entities to choose from. Each has its positives and negatives. What might be an excellent fit for you may not be the right choice for another. These are some of your options:
- A sole proprietorships is what you get by default. You’re the sole owner. Your business income is your income. If there’s a judgment against you or your business owes someone money, the creditor may collect the debt from your personal assets. This is the simplest form of ownership, but carries the highest exposure. Outside investors won’t fund a sole proprietorship.
- A general partnership would be composed of you and other partners owning the business. This type of structure also has no shield from individual liability. Additionally, you could be responsible for the acts of another partner (even if you didn’t know about their actions). The profits of a general partnership pass directly to the partners. If you are seeking investors, those investors would typically become partners in the partnership.
- A limited partnership has at least one general partner and at least one limited partner. The general partner is the partner that manages the operation, and limited partners are investors who do not play a direct role in running the business. Profits and losses pass through to both kinds of partners, and are reported on the partners’ individual tax returns.
- Shareholders own a corporation, while elected officers operate the corporation. Corporate officers are the connection between company management and the board of directors, which makes important decisions and sets policies for the corporation. A corporation is the most formal business structure with the most legal requirements. A corporation is also the most attractive form for investors. C corporations are double-taxed: they may have taxes to pay at the corporate level, and profits given to shareholders through dividends that are taxable again at the shareholder level as their personal income.
- Limited-liability companies (LLCs) are less formally run than corporations. Profits and losses pass through to the owners (or members) and are reported on the members’ personal tax returns, so there is no double taxation. Members or appointed managers may manage the business through the terms of an operating agreement. This is a good choice if there are a few owners (even if there is only one), but may not the best structure for outside investors.
Since this isn’t a “one size fits all” solution, we normally have extensive conversations with clients before creating an entity. If conditions or your goals change in the future, you can also change your business entity.
How Can I Protect Personal Assets When Starting a Business?
You can protect your personal assets in several ways, including:
- State and federal exemption statutes
- Insurance policies and products
- Irrevocable gifting trusts
- Domestic self-settled spendthrift trusts
In addition to the foregoing, starting a business can provide a means for protecting assets. Accordingly, when starting a business you should focus on the type of entity you are going to form. As a general rule, when your protection from creditors increases, your control and flexibility over assets decrease, so you will want to find the right mix. Protection from lawsuits should be a greater priority if your company will:
- Have many employees
- Be open to the public, like a retail business
- Have contracts with many other companies
- Provide potentially high risk services or products
- Rely on debt financing
If a corporation is formed and operated correctly, only the assets held inside the corporation should be at risk. A shareholder cannot be sued for corporate acts, and therefore a shareholder’s personal assets should be safe unless a court finds reason that the corporate “shield” should be “pierced” (e.g., failure to follow formalities, or the corporation is a sham used to improperly protect its owners). The same is generally true of LLCs.
A limited partnership may also be a good choice for certain projects. In a limited partnership, the general partner (who operates the business) finds limited partners (the investors) who don’t play a role in management of the business. If the business does well, so do all the partners. If it goes poorly, the limited partners’ maximum loss is their investment. Limited partners aren’t personally liable if the entity is sued, but the general partner may be.
Starting a Business? Contact a Lawyer Who Knows About Business Formation and Asset Protection
When you start a business, it’s easy to put all of your focus on profitability. But adequate attention should be given to legal concerns and asset protection as well.
LKP has experienced business formation and asset protection lawyers who practice serving individual clients and their businesses throughout Nevada. If you or someone you know is creating a business, or is just in the planning stage, 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 with one of our attorneys.
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.