ASSET PROTECTION
Initiating a business is often a risky proposition. Your prized possessions, dreams, and labor are put in danger in order to develop a good or service that would aid society and your own financial future. However, this comes with many types of liability risks. Therefore, asset protection planning and various strategies can prevent potential damages. A few strategies include a limited liability limited partnership, a family limited partnership, a series LLC, and more. More details about these approaches can be found below. Additionally, Nevada is a great state for your business, as the legislation contains multiple benefits for businesses..
LIMITED LIABILITY LIMITED PARTNERSHIP (LLLP)
This type of Limited Partnership ensures that only assets put into the partnership are held liable unlike a normal limited partnership (LP) which puts a general partner at total personal liability. An LLLP also does this without most of the stress of creating an entity with multiple levels by using a straightforward approach. LLLPs are allowed in many states including Nevada. It consists of an initial registration fee of $25 and yearly filing fee of $50. This is may be slightly more than unlimited personal liability insurance of $50 yearly but it provides increased security.
FAMILY LIMITED PARTNERSHIP (FLP)
A typical limited partnership involves a general partner, who is the main manager and is held accountable for the business, and a limited partner, who is solely an investor and has no other involvement. An FLP consists of only family members where one purchases both the general and limited partnership in order to transfer the limited partnership to other family members. This decreases the estate's taxable value and allows one to maintain control. Also, it offers a yearly gift tax deduction and allows discounts of the transfer value. This is especially helpful in a divorce where ex-spouses' shares may be mandated to be sold. Some other advantages of an FLP include creditor-protected assets, decreased investment costs, and less brokerage accounts.
REAL ESTATE PROTECTION
- i. Our company can help you to make wise investment plans and safeguard your real estate by forming a Limited Liability Company (LLC) in Nevada
- ii. Properties connected to an individual are subject to personal damages. If one of your properties has a lawsuit against it, your personal assets will be endangered. However, properties connected to your company cannot be tied back to you and protects your personal assets. Additionally, the assets in the company will be protected if there is a lawsuit against you as an individual. We suggest forming a Nevada LLC if you have one real estate holding and buy real estate through the company.
If you have multiple real estate investments, we suggest putting each in a different Nevada LLC or forming a Nevada series LLC. If you place many holdings in one LLC and it receives legal problems, every piece is at risk. Acquiring property in different LLCs means multiple costs like each LLC paying for state charges, filing fees, and bank accounts. A series LLC saves on various fees and one series cannot be held against the other. The rent money should be paid to a different LLC which will act as a property management business. However, the Nevada series LLC is only seen as separated assets in Nevada court. Many banks have trouble understanding the series. Doc Funds can help you organize and manage your accounts with these options and more.
EQUITY PROTECTION
- i. To protect your personal assets, it is best to utilize an LLC, especially for small companies, or a corporation. However, this leaves your business assets at risk. There is a way to protect both your personal and business assets. This is done by using a holding and an operational entity. The holding entity will own the assets while the operational entity has control of them and is liable for all risks. Because the operational entity has no assets and the holding entity is not responsible for the operational entity, there will be no loss if there are legal disputes. Therefore, the business and personal assets are safeguarded.
It is best to use two LLCs formed in states that approve the Revised Uniform Limited Partnership act. This prevents personal creditors from attacking your businesses. They will be able to do this with two corporations. It is also possible to form a statutory close company as the operational entity and an LLC for the holding business. When creating the two different entities, it is beneficial if the owner forms and funds the holding entity which will then do the same to create the operational entity. Alternatively, one could form a series LLC, but it is best for the holding entity to own the operational entity.
ii. The holding entity may own multiple operating entities, but each operating entity should be separate from the others. Additionally, the holding entity should own the valuable assets so that the operating company can lease it. This way the operational entity can borrow money through loans and mortgages from the holding entity to obtain more assets. Basically, the holding entity trades money for a lien on the operating company's assets. This also makes the holding entity a priority lien holder, so it will be the first creditor that money is returned to in the event of a foreclosure. Through this method, other creditors will not obtain any of your entities' assets. Again, the operational entity is in charge of all business activities and liable for only its own risks. It is important to employ continuous withdrawal techniques in order to remove cash and exposed assets from the operational entity. It is advantageous if there are multiple operating entities for each type of business activity because each sector will be held liable for its own actions. The best option for multiple operational entities is utilizing a series LLC. This allows the one holding entity and however many operational entities to be formed under on LLC. Each sector or "series" would act as a separate LLC, but legally, it would be formed under one. As mentioned before, this saves money that would be used for tax filings and other business charges. However, series LLCs are not permitted in all US states and are particularly new, so we can help you understand the complexities it involves.
iii. If you are a professional or if all owners have the same license, you are only able to form a LLC, LLP, or a corporation. The holding entity should not be involved in any of the professional activities. This should be reserved to the operational entity only. This allows family members to co-own the holding entity. There are more specifics involved in this practice, so please see us for assistance.
BUSINESS ENTITIES
- i. There are many types of business entities. For example, there is the sole proprietorship, Limited Partnership, Limited Liability company, and Corporations.
- ii. A sole proprietorship treats the business and the individual as the same entity. Business taxes are shown on personal tax returns, but this also means the individual is fully liable for anything that happens with the business. However, it is the simplest form of business, as there are no fees or filing requirements.
iii. A Limited partnership involves general partners, who will manage the company and are personally liable, and limited partners, who are investors only and not personally liable. There are not many formalities, and it has lower taxes compared to an LLC or Corporation.
iv. A Limited liability Company has the best protection from personal liability compared to the others listed here. Federally, these are seen as partnerships which allow pass through taxation, but this varies for state or local laws. An LLC is simple to manage; however, some states dont allow LLCs, and there are many formalities involved to start one like annual fees and filings.
v. A corporation is a completely separate entity from its owners so they will not be held personally liable. This also means it never dissolves and ownership can be transferred. Some have tax benefits, but a C-Corp is double taxed. There are many meetings, filings, and fees involved with corporations.
vi. To best choose your type on entity, consult with Avant Tax
BUSINESS FORMATION IN NEVADA
Nevada is the best state for business. It does not tax profits or shares from businesses. It does not have a franchise or personal income tax. It does not keep public records of shareholders or owners. Nevada corporations can buy, sell, and transfer shares of its own stock and that stock can be issued for anything of value. The corporation owners are also protected from personal liability.
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