There are several types of business entities in Nevada. Each entity has its own specific benefits, and drawbacks. Which entity is right for your business depends upon many factors, including the size of your business, your goals, and the risk inherent in your industry.
Nevada offers limited partnerships. A limited partnership is an agreement between several people to operate a business. In a limited partnership, one partner - called the general partner - runs the business. As the person running the business, the general partner is directly liable and at risk for any of the company's liabilities. Such liabilities might include broken contracts, bad debts, or claims for personal or property damage from customers or employees. However, the limited partners (i.e. any partner who is not the general partner) are insulated from such claims. Limited partnerships are taxed on a "flow through" basis, which means that the net profits of the limited partnership are reported on the partner's tax returns directly.
Nevada also has limited liability companies. A limited liability company is owned by a member, or group of members. The rights and responsibilities between the members are defined by an operating agreement. Often, one or more members are singled out as the "manager," or the person responsible for running the business. Although this looks very similar to a limited partnership, the manager of an LLC is generally not at personal risk for the company's liabilities. Instead, under the protection of an LLC, there is a "veil" between the individual members and the business which protects the individuals from the business's liabilities. Generally, an LLC is taxed on a flow through basis like a partnership, although the members can elect to have it taxed like a corporation.
A corporation is a business that is owned by shareholders. The shareholders vote to elect a board, and the board runs the business. Corporations have the strongest legal protection in that it shields the shareholder-owners from the liabilities of the business. However, corporations are often highly structured with required annual meetings and may have complicated by-laws.
Additionally, corporations are directly taxed so that any income paid out to a shareholder as dividends often experiences a double taxation - once as profit for the corporation, and second as dividend income to the individual. Such taxes, however, can be planned for and often minimized.
Which business entity is best for you depends on a myriad of factors. The level of protection you might need from business liabilities, the best way to minimize taxes, and the best structure for flexibility all need to be considered when forming a business entity. There is no one-size-fits-all company.
Cassandra Jones is an elder law and family law attorney in Gardnerville. She can be reached at 782-0040.