This article summarizes a conversation between Amanda Stevens and Whitney Short. For the full discussion, check out the podcast!
People start LLCs for all sorts of reasons, be it limiting their liability, separating personal and business finances, or something else.
Whatever the reason, it’s important to set things up the right way. Otherwise, problems can occur.
Why Contracts Matter, Even Between Friends
New business owners often make the mistake of relying on verbal agreements, especially when partnering with family members and friends.
Given the unpredictable nature of business relationships, much of the work we do around business law focuses on helping clients avoid potential conflicts and costly legal disputes.
For example, a strong operating agreement offers you protections in the event one person stops contributing.
The future is unpredictable, and while no one wants their personal or business relationships to sour, having a structure in place is foundational.
Choosing the Right Business Structure
LLC, S Corp, partnership: These terms get thrown around a lot, and there is often a fair amount of confusion about what each one means or does. Sometimes, business owners come to us with a specific structure in mind but no clear sense of why it’s the right fit.
One common example: many people don’t realize that when you file with the Secretary of State, it’s an LLC. The S Corp classification is something you file with the IRS.
This is just one example highlighting the complexities of structuring a business entity in Nevada—and the value of speaking with us. We do more than just point you in the right direction. We offer you a comprehensive understanding of your options and ensure your business structure supports your long-term goals.
LLC Protection Isn’t a Two-Way Street
Before forming an LLC, it’s important to understand what kind of protection it actually offers. An LLC limits your personal liability for business-related issues but only if you treat the company as a separate legal entity. That means maintaining a strict separation between your personal and business finances.
However, that protection only works in one direction. If you’re personally sued for something unrelated to the business, your ownership interest in the LLC could still be targeted. Creditors can’t usually take business assets directly, but they can go after your share of any distributions.
When a Series LLC Makes Sense
A series LLC allows multiple internal divisions (“series”) under a single, parent LLC.
This structure can be very useful for managing several rental properties, as each division can have its own owners, financials, and decision-making rules.
However, strict recordkeeping is a must, and not all states (or banks) recognize the structure, which can limit its usefulness.
Out-of-State LLCs and Legal Complications
We’ve had several clients ask about forming LLCs in Wyoming or Delaware, often because they believe it will be cheaper or offer their business better protection.
While these states are certainly business-friendly, Short and Stevens Law recommends some degree of caution if you’re a business owner located in Nevada. Registering out of state can require you to pay additional annual fees and also complicate lawsuits.
That said, it is possible and possibly even beneficial to form an out-of-state LLC. You just need to be aware of the potential drawbacks.
Set Your Business Up to Succeed with Short and Stevens Law
Setting up an LLC can be complex. That’s why we encourage clients to put us in contact with their CPA and financial advisor.
We also emphasize the importance of having a solid operating agreement. It should cover things like: Who’s the manager? What authority do they have? What happens if someone wants out or if there’s a disagreement?
Setting up your business the right way makes all the difference.
Are you ready to start an LLC? Schedule a consultation with Short and Stevens Law.
