Hi, I’m Jerry Carter with the Sierra crest business law group here in Reno, Nevada. We represent a lot of business owners. And so one of the questions that come up in our business representation is, what type of entity should I use to start my business? A lot of business owners ask us if a Nevada series limited liability company is appropriate for their business. And I’d like to talk a little bit about what the Nevada series limited liability company is a what it can do for you as a business owner. What are some of the traps and things to be worried about with the Nevada series limited liability company? And then, hopefully, give you some information that will enable you to get on your way to explore your options and make a choice on what, what to do. So let’s start with what is a Nevada series limited liability company?
What Is A Nevada Series Limited Liability Company?
Many business owners have heard of the traditional limited liability companies or LLC. An LLC is an entity that allows the owners a lot of flexibility in putting together the governing rules of a corporate entity and how it can do business. It also defines how the members or owners will vote. A Nevada series limited liability company involves an overarching LLC under which you have a set of separate units or, or sub-companies and it could be any number. There could be five; there could be 10, there could be a hundred. The concept here is to create one LLC by filing the articles of organization with the secretary of state and by paying the fees for that one entity. And then you can create the sub-entities underneath it, which don’t have their separate filing requirements. In this setup, the series of companies don’t have their own set of filing fees.
But further, if you set it up correctly, the sub-companies are protected from the liabilities of the other sub-companies. So, if you have some Sub-Company A that owes money to a creditor, Sub-Company B does not have to pay company A’s debts. Each of the sub-companies will need an EIN for purposes of federal taxation. And, you can take a traditional Nevada limited liability company and convert it over to a series limited liability company. So that’s what a series liability limited liability company is.
How Is A Nevada Series LLC Company Structure Used?
Now, what is the use of a Nevada series LLC? What can a Nevada series LLC do for you? First of all, as we’ve mentioned, you can save a lot of money on filing fees. Regardless, you only pay one set of filing fees for the entire company no matter how many sub-companies you have under that umbrella.
Second, the main advantage is that you can separate the liabilities from company to company or from sub-company to sub-company.
Third, and it may be more important to some companies than others, but you can preserve a little bit of anonymity by using this structure. Any limited liability company that has formed has to file a list of managers or managing members publicly. So, the manager’s names will be out there in the public domain. Subunits don’t record anything, and they can have different managers, different members, and various operating agreements. And so there will be a little bit of anonymity as to the subunits in the series.
What Are The Risks In Using A Nevada Series LLC?
Let’s talk a bit about caution areas. What are the traps that you need to know about as a business owner when you’re considering the structure of a Nevada series limited liability company?
First, although the statutory scheme promises that there will be a veil and liability protection between each of the subunits, no liability protection is going to be bulletproof. First of all, you have to do some things to get that liability protection. As a manager of a series LLC, you will have to ensure separate and distinct record-keeping for each unit within the series. You also have to use particular language in the articles of organization and or the operating agreement that, that spell out liability protection will be in place. Please keep in mind; the internal revenue service has stated that if a member of a series limited liability company has tax liabilities, they would reserve the right to go after another member of the series to satisfy any obligations.
Also, you have to remember that there are a lot of states that don’t have a series of limited liability structure available, for example, California. And so those States are not likely to recognize the partition of liability between the units. They’re more likely to collapse all the subunits into one single company and, and make the whole enterprise liable.
Use a Nevada series LLC company in Nevada or another state that recognizes the entity. For example, if you take a series limited liability company to a state like California, it will be difficult to qualify that company to do business in that state. The same is true for other states that don’t recognize the entity. And it will undoubtedly be challenging to receive equal liability protection that you would otherwise expect.
Another thing to consider, the administrative responsibilities of a series limited liability company require each unit to have its record-keeping and business licenses. The administrative hassle and cost of having five separate LLCs may be about the same as having one series limited liability company with five units. You may not get considerable savings in the administration. Depending on the level of sophistication, you may find that your tax, accounting fees, and legal fees may be higher using the series limited liability structure. Lastly, there are a lot of banks that won’t loan money to a series limited liability company or a unit within that series LLC. You’ll need to make sure with your bank or another lender that’s an option for you with this type of structure.
Another point to consider is that if there is a problem with the overarching limited liability company, that problem could tumble down and bleed into the subunits within the series limited liability company. For example, if the voting members of the overarching company deadlock on a vote, then that could be a dangerous situation and could ultimately cause the overarching company to dissolve. That scenario is going to put into question the existence of the subunits within the series LLC. You’ve got to keep an eye on whether the overarching LLC problems could bleed down into your subunit.
We Can Answer All Your Series LLC Questions.
So that’s a lot of information about series limited liability companies in Nevada. The next question, of course, is what do I do about all of this? Well, as you know, the choice of the appropriate entity structure for a company requires careful consideration. You should consider that with your business attorney and with your accountant. Please give me a call if you have any questions about what type of structure is best for your business. You can call the Sierra Crest Business Law Group at (775) 448-6070. We’ll be happy to talk with you about that and help you make that decision.