NEVADA SERIES LLC
If you are planning to set up a business in Nevada and want to take advantage of asset protection laws in the state then you can opt to form a traditional Limited-Liability Company or a Series LLC governed by Chapter 86 of the 2017 Nevada Revised Statutes. Let’s try and understand the difference between either forms of LLC.
What is Nevada Series LLC? How does it differ from a Regular LLC?
Nevada is one amongst 14 jurisdictions in the nation to have adopted statutes that provide for the formation of a series limited liability company. A series LLC abbreviated as an SLLC; is a type of limited liability company providing liability protection across several series. In simpler terms, it can be defined as a single entity that constitutes separate assets, management, members, liabilities, investment objectives, and ownership structures.
The assets of each series, also known as divisions are protected from liabilities of the main LLC as well as other series or divisions. The structure of a Series LLC is hence quite different from that of a traditional LLC. This type of limited-liability company structure is quite an uncommon option for businesses as there is a lack of clear guidance from the judicial, legislative, and regulatory body. Perspectives are changing now as the IRS has proposed regulations indicating that IRS considers a series limited-liability company as a legitimate structure.
Now that you know what a series LLC is, ever wondered how it is different from a regular LLC? One of the biggest differences between these two types of LLCs is that a series limited liability company will allow you to compartmentalize or segregate your assets. Hence, this form of limited-liability company provides a business with the best possible asset protection in Nevada.
Series LLC Benefits
As compared to the traditional limited liability company, a Series LLC registration in Nevada will allow businesses to enjoy a different set of benefits although some advantages are similar. One of the salient aspects of a series limited-liability company is that the benefits would be long-term, so that it can support sustainability and enable overall growth of the business. Here’s a window into the different benefits for a start-up business in Nevada.
The first and foremost benefit that a business entity will enjoy post series LLC registration in Nevada is “asset protection”. The concept of a series limited liability company is quite well suited for different types of assets that an LLC owner or members may have including real estate. This type of LLC comes with a protective shield for all internal liabilities. This shield allows owners or members to segregate assets into multiple series. As a result, exposure of assets to liabilities is reduced considerably.
Here’s an example: ABC LLC owns a Fast-Moving Consumer Goods (FMCG) business and has its own fleet of transportation vehicles to transfer products to the market. A small accident of even a single truck or transportation vehicle can increase liability of ABC LLC but if the same company forms a series LLC for each section or activity that the business is involved in then it will restrict the liability to that activity or section. If the production is one series and transportation is another series then an accident on either of the series or divisions will not hamper the entire company. As a result, the entire company cannot be sued.
A series LLC registration in Nevada simply means that there is a parent LLC and there is sub LLC within the parent LLC. It should not be confused with a “parent-child” relationship of the series but should be considered as a horizontal relationship (siblings). At the same time, each division in the series limited-liability company has its own profit, loss, and liability. It is also separate from other divisions legally and in economic structure.
An example of a business that will benefit through series LLC registration is a property management company, which owns multiple properties. In such a company, each of the properties can be an independent cell or division under the parent SLLC.
Low cost of startup
One of the finer aspects of series LLC registration is low cost of start-up. An SLLC will require a single filing fee even though it has multiple series. It can easily be set up by a Nevada registered agent like IncParadise at a lesser cost as compared to setting up multiple LLCs.
A series LLC registration has a less complicated structure as compared to corporations. An SLLC will not have complexities in structure, taxes or even document formalities.
Even though a Series LLC constitutes multiple series or divisions, only the parent LLC will need to file a tax return and not each division.
Risks of Series LLC
There are provisions for series LLC registration in Nevada Revised Statutes as seen in NV Rev Stat § 86.296 and NRS 86.296(3) yet there is not enough detail regarding their operations. This is mostly due to the fact that they are considered to be in their legal infancy stage and have been adopted in only one-third of the states.
Since there is a cloud of uncertainty around the operations of the SLLC, there are certain risks that businesses need to consider prior to Nevada series LLC registration. Some of these risks identified below:
- Taxation: One of the prominent issues that pose a risk to series LLC is payment of Federal tax. The procedure is quite complex. Apart from this, the tax treatment of a series limited-liability company and by the IRS as well as state tax departments is quite unclear due to the lack of uniform tax guidelines.
- Bankruptcy: The Nevada Series LLC laws surrounding Federal Bankruptcy provides no guidance whatsoever. This is due to the fact that the U.S. Bankruptcy Code has not recognized the Series limited liability company. As a result, there is a lack of consensus on whether an SLLC should file bankruptcy in a series or as a single entity.
- Registered Agent: Unlike in traditional LLC, a series LLC registration will lead to each series or division being managed by separate registered agents. This could lead to higher expense of hiring additional agents.
- Banking and Accounts: A series LLC has multiple divisions and each division needs to have a separate bank account. Since, each series will have their own financial statements; they need to have separate accounting as well. The greater the number of LLC’s in a series, the bigger the administrative issues.
- Governing Documents: It is imperative that the governing documents for series LLC registration are carefully drafted. These documents should take into consideration specific statutory requirements of NRS 86.296(3). Even the slightest mistake could hamper the formation of such an entity.
- Operation in another state: This is an area of concern for a Nevada series LLC. With such business plans to operate outside of Nevada, especially in a jurisdiction that does not have a series LLC statute the court will not recognize such a business entity.
Series LLC Requirements & Registration
A limited-liability company is definitely beneficial to businesses looking at asset protection but what is the process for Nevada series LLC registration? The process is as follows:
- In order to form an SLLC in Nevada, you will be required to file “Articles of Organization” for establishing an umbrella or master Limited Liability Company.
- The Articles of Organization and Operating Agreement of the LLC should contain the following information:
- A statement confirming the master LLC will have multiple series
- A statement of series LLC registration setting forth the powers, rights, and duties of the series
- A statement indicating that the rights or powers of each series is provided in detail in the Operating Agreement of the LLC
It is important to note that a Series LLC is not considered as a separate business entity under Nevada Revised Statutes.
Taxation for Series LLC
When it comes to taxes, do taxation for series LLC work in a different ways as compared to traditional LLCs? Do you need to pay federal taxes or state taxes? These are some of the questions frequently asked by business owners planning to form a series limited liability company. So, let us look at what tax obligations SLLCs have.
If we look at a series LLC from the point of view of Nevada state laws then the series limited liability company is not considered as a separate entity but in the case of taxation things are beginning to change. Recently, changes in federal tax regulations have been proposed that would treat each series in a series LLC as a separate entity when it comes to payment of federal income tax. This is governed by Proposed Reg. §30.7701-1, 75 Fed. Reg., 55,699 (2010). These proposed regulations are applicable to a series that has been created by a “series organization” pursuant to state specific series statutes.
The above is a proposed regulation only and therefore a series LLC would have to report as a single entity in the state of Nevada. You can form an LLC in Nevada as the first step towards starting a series.
Difference between series LLC and a Restricted LLC
The business structure of a limited-liability company is undergoing a vast change and this has allowed different states including Nevada to create different types of LLC. These LLC’s are being created to offer a variety of benefits to businesses like asset protection and tax benefits. The two new types of limited liability companies that are accepted in the state of Nevada are Series LLC and Restricted LLC.
The Notable Differences
Since Series LLCs and Restricted LLCs are two forms of a limited-liability company, how are they different?
- Acceptance: The series LLC registration is possible in 17 states but a restricted LLC can only be formed in Nevada. A restricted LLC is a limited liability company that is organized and exists under chapter 86 of Nevada Revised Statutes. It is an LLC that elects to include the optional provisions as permitted by NV Rev Stat § 86.161 (2015).
- Structure: A series LLC is a type of master LLC that constitutes several sub LLC’s or a series of business divisions with separate members or managers and assets. A Nevada restricted LLC is like a traditional LLC and does not have separate members or assets under divisions or series.
- Distribution: A series LLC does not have restrictions when it comes to making distributions. As the name suggests, a restricted LLC however has certain restrictions. For instance, it cannot make any distributions to its members or managers prior to 10 years of existence. Of course, this type of restriction has its benefits as it provides a favorable tax treatment to the members.
- Tax free Interest: A series LLC does not have a “tax free interest period” but a restricted LLC has such a period. If the interest generated from a restricted limited-liability company is gifted to family members then that interest will be tax free for a specific period of time.
- Liability: A series LLC has been created specifically to protect assets and minimize liability but a restricted LLC faces the same liabilities as that of a traditional LLC.