Nevada Limited Liability Company:
Why consider setting up an LLC?
The simple answer is for protection of assets. Essentially, it is a preferred business strategy to separate your personal assets from your business and/or real estate assets. One way to do this is by setting up a business entity with a different name and preferably a unique tax identification (I.D.) number that is different than your social security number.
LLCs are similar to Chapter S corporations, except they can exist for a defined period of time. Owners receive the tax advantages of a partnership, while also receiving the protection of a corporation. To make it even better, all states except Massachusetts allow an LLC to be formed with one person.
LLCs may be formed for most businesses, except some professional businesses that require licensing for protection of the public. Generally, doctors, lawyers, accountants and other professionals cannot use an LLC to practice.
Another reason to set up an LLC is that some states and other government agencies require either a U.S. social security number or a federal tax I.D. number to invest in foreclosed properties. For those of you living outside of the United States, this is a great way to obtain a federal tax I.D. number.
Summary of LLC benefits:
* Allows for partnerships with limited liability.
* Helps protect personal assets of owners or members.
* One owner/member allowed in all states, except Massachusetts.
* May not require an annual shareholder meeting, like Chapter C and S corporations.
* Favorable tax status can be set up and taxed at owner's tax rate (default) or as a company (requires filing other paperwork).
* New series LLC makes structuring for multiple properties easier.
How does an LLC work?
First, decide whether you will be setting up the LLC yourself or whether you will contact an attorney or accountant. If you are planning to do it yourself, then decide where you will set it up. You do not have to set up an LLC in the state that you reside in; however, it may be easier. If you plan on setting it up in another state, you will probably need an agent or representative who lives in that state to act on your behalf. There are companies that will gladly do this for a small annual fee.
Decide on the structure of the LLC. There are two main types of LLCs. One is called a member-managed LLC and the other is called a manager-based LLC. A member-managed LLC essentially says that all owners ("members" in LLC lingo) are equally responsible for management of the LLC. A manager-based LLC says that certain members (the "managers") are given authority to run the LLC.
Decide on a name. Check your state's requirements. Usually the name must incorporate "LLC," "Limited Liability Company," or some other variation. Check with the state to make sure the name has not been taken, before filling out the paperwork.
To set up an LLC, you really only need to fill out Articles of Organization; however, you should also have an Operating Agreement that specifies the details of ownership, compensation, voting rights, distribution and what to do in case someone quits or dies.
Here are my three favorite states to consider: Nevada, Wyoming and Delaware.
You may want to factor in where you live and consider setting up an LLC in your own state, especially if you are only investing in your home state.
A big advantage to incorporating in Nevada is that the state imposes no income taxes on either its citizens or its corporations. Therefore, profits made by your LLC are not taxed. Additional corporate taxes that are not collected in Nevada include the following:
* franchise tax
* capital stock tax
* stock transfer fee or tax
* tax on corporation shares
* succession tax.
A high level of privacy with respect to ownership in a corporation is provided for by Nevada laws. For example, there is no law requiring that stockholder names be filed with the state and be made public record. Another example is Nevada Revised Statute 78.257, which imposes strict sanctions against non-stockholders who attempt to inspect corporate documents or use them for purposes contrary to the interests of the stockholders. Because of these and other privacy provisions, and for budget reasons, Nevada does not keep much information on its corporations. As a result, unlike other states Nevada has no information sharing agreement with the IRS and has refused IRS requests for reciprocity.
Nevada is a state with charging order protection of assets. In other words, a creditor or suing individual (and even the IRS) is only entitled to distributions made from the LLC, through a charging order. As long as the LLC doesn't make any distributions and, since the purpose of the LLC could be for long-term investments using your self-directed IRA, no distributions are made assets of the LLC are protected.
A new benefit to setting up a Nevada LLC is the ability to structure your LLC as a series LLC. What this means is your base LLC can contain subunits or sub LLCs within the parent LLC. Sounds complicated, so why the heck would anyone want to do this? The answer is to separate distinct businesses or properties from one another.
For more information on setting up an LLC yourself, visit http://www.rogueinvestor.com