If you do not want to be personally responsible for the liabilities of the business, then you should create a separate legal entity such as a corporation or an LLC. A properly operated corporation or LLC limits the liability of its shareholders to the amount they invested in the company. If the company incurs debts or liabilities, the creditors are limited to the assets of the company. In the event the assets are insufficient to cover the debts of the business, creditors may not generally collect additional amounts from the shareholders. By contrast, a sole proprietor is personally liable for all the obligations of the business. This means that sole proprietors risks everything they own to satisfy the debts or judgments of their respective businesses, including their homes, cars and personal savings and investments.
Transferability of Ownership
If you plan to sell your business someday, then you should create a separate legal entity. Since a sole proprietorship does not have a life apart from its owner, it may not be transferred to a third party. In the event of a sale, each asset used in the business would have to be specifically identified and transferred. Buying a business is a lot more desirable if everything needed to operate the business exists in a distinct legal entity. In that case, the sale could be accomplished either by simply transferring all of the stock of the entity or all of the assets held by the entity.
If you want your business to continue beyond your lifetime, then you should incorporate or form an LLC. Sole proprietorships end upon the death of the owner. Corporations and LLC’s continue indefinitely unless they are dissolved. Their ownership interests can generally be sold, gifted or bequeathed to others.
Ability to Raise Capital
If you want to share ownership with others, then you should incorporate, form an LLC, or at least consider forming a formal partnership. Corporations and LLC’s generally allow an unlimited number of shareholders (except S corporations, which have a limit of 100 shareholders).
Series LLC Benefits
There are clear cost and administrative efficiencies by establishing a series LLC to segregate real property (and other) assets and businesses into their own series within an LLC for asset‑protection purposes when compared to the cost of establishing separate, multiple LLC’s for each property or business. Each specific real property in a multi‑state or multi‑parcel transaction can be placed into a separate series with liability limited solely to that property. This also helps to minimize initial start‑up and formation costs, filing expenses, and state franchise fees and other charges (as well as annual maintenance, administrative, compliance and tax costs) that otherwise would be incurred with respect to the establishment of individual LLC’s for each property and could amount to several thousand dollars.
The series LLC offers liability protection to each series. The liabilities, debts and contractual obligations of any series can only be enforced against the assets of that particular series, not the assets of any other series or the master LLC entity itself. The members and their ownership interests, rights and responsibilities, provisions for admitting new members and terminating or transferring membership interests can be different in each series. The previous option for forming a series LLC, and the only option in states without a series LLC statute, is the formation of multiple LLCs with each LLC being able to have its own member, assets, etc. and not be responsible for the debts and obligations of another separate LLC entity.
A Different Business Purpose for Each Series
Each series may have its own completely diverse business purpose or investment objective. One series could own one or more real estate assets while another may operate a retail business while a third series may have a portfolio of passive investments such as stocks and bonds. The only prohibited business purposes are typically for banking or insurance company operations. Additional series may be added from time to time to accomplish different objectives, each with its own set of members or classes of members and assets.
The series LLC may be ideal for real estate investors, taxicab companies, trucking companies, franchisees, etc.
If you’re considering forming a Nevada Limited Liability Company… We Can Help!