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What is a Nevada LLC?

Posted by attorney James Claflin

In the State of Nevada, "LLC" is the common abbreviation used for a type of business entity known as a "L"imited "L"iability "C"ompany.

Nevada LLCs.

For the State of Nevada, an LLC is a business entity (like a Nevada corporation) recognized by Nevada law and formed through the Nevada Secretary of State. An LLC functions in much the same way as a corporation. The owners of an LLC are called "members." Each member holds (or, in other words, each member "owns") an "ownership interest" also called a "membership interest" in the LLC. Such ownership or membership interests are ordinarily represented by "Member Units," which can be represented on a piece of paper that is often called a "Member Unit Certificate."

Compare an LLC to a corporation.

Many people are familiar with what a corporation is and basically how it works. To better understand the basic concepts of an LLC, compare the ownership of an LLC to the ownership of a corporation. The owners of a corporation are called "shareholders" or "stockholders" because they hold (or, in other words, they own) "shares of stock" (or simply "stock") of the corporation. Such ownership interests are ordinarily represented by "stock" or "shares of stock," which can be represented on a piece of paper that is often called a "Stock Certificate" (or "Share Certificate").

An LLC gives protection from personal liability.

Most people understand that a Nevada corporation provides a "corporate shield" to protect its shareholders/stockholders/owners from personal liability. But the protection in Nevada is broader than that. Indeed it is inaccurate to view the concept of a "corporate shield" as applying to protect the owners of Nevada corporations only; the term "corporate shield" equally applies to protect the owners/members of Nevada LLCs as well.

To understand the difference between personal liability and what could be termed business (or company) liability, it is useful to understand that Nevada law generally defines a "person" and recognizes two kinds of "person." As a general matter, a "person" under Nevada law can sue in court or be sued in court. The first, most obvious, common-sense kind of person is a human being, also called a "natural" person under Nevada law. So for example a woman can sue in court, or she can be sued in court; if she is sued personally in court, she is subject to personal liability, which means her personal assets are placed at risk. The second, less obvious, more tricky kind of person is a legal entity, which is often called by a variety of names, such as "artificial" person, "statutory" person, "legal" person, or "entity" person. This second kind of person is formed (or created) by Nevada law -- by Nevada's business entity statute that was enacted by Nevada's legislature. The two most common forms of a Nevada entity person are a Nevada corporation and a Nevada LLC. So for example a Nevada LLC can be represented by an attorney as the attorney's client; it can sue in court, or it can be sued in court. When a Nevada LLC is sued in court, it is subject to its own business/company liability, which means its own business/company assets are placed at risk. But because its members/owners are protected by the "corporate shield," the LLC's members/owners ordinarily are not subject to personal liability just because they happen to own the LLC.

Owning another person can be legal; it is not always slavery!

Flowing from the legal idea that there are two different kinds of "person" are the legal ideas that natural persons can own all kinds of stuff, including artificial persons, and artificial persons can own all kinds of stuff, including other artificial persons. As examples, a woman can own a house, a sculpture, and Dry Cleaners R Us, LLC; so too can Dry Cleaners R Us own a computer, 1 acre of land, dry cleaning equipment, and Little Petals Flower Shop, Inc.

Standing behind the protection of the corporate shield.

It is against this background, that the owner (or member) of an LLC is viewed as being protected by a "corporate shield." If the woman in the example operates Dry Cleaners R Us, LLC correctly, claims against Dry Cleaners R Us, LLC for money are claims against the LLC only and ordinarily are likely to be satisfied by what the LLC owns (a computer, 1 acre of land, dry cleaning equipment, and the stock of Little Petals Flower Shop, Inc.); but these claims ordinarily cannot be claims against the woman and what she owns (a house, a sculpture, and the member units of Dry Cleaners R Us, LLC). What the woman owns ordinarily is protected from such claims; in other words the woman ordinarily is not "personally liable" to satisfy the claims against the LLC. The LLC must pay its own bills and claims; if it cannot pay, it should hire an attorney to discuss its options. But again ordinarily these issues have nothing to do with the woman's own, separate, personal affairs.

Operating an LLC correctly.

There are several key factors for the woman in the example to consider to operate Dry Cleaners R Us, LLC "correctly," that is to say, to operate it so that the corporate shield remains strong and always protects her from personal liability for claims against the LLC. The scope of this legal guide does not allow for a more thorough discussion of these factors, but mention of two critical factors is warranted. First the woman must always keep all books, records, financial affairs, and bank accounts of Dry Cleaners R Us, LLC strictly separate from her own personal affairs. Second the woman must always ensure that Dry Cleaners R Us, LLC has been sufficiently capitalized for its operations. If she does not do at least these two things, she runs a very high risk that the corporate shield could be "pierced" by a creditor of the LLC under certain circumstances. When the corporate shield is "pierced," the creditor of the LLC can go after the woman's personal assets (her house, her sculpture, etc.) -- which is obviously a very bad thing for her.

There are even more benefits for the members of a Nevada limited liability company not explored here. Consult with a good Nevada business attorney for more information.

Additional resources provided by the author

Please see Nevada Revised Statutes. CHAPTER 86 - LIMITED-LIABILITY COMPANIES.

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