Nevada LLC Formation Guide
When forming or updating a Nevada LLC, it is crucial to consider state-law considerations. Because the laws of each state are different, the LLC’s formation documents—especially the Nevada operating agreement—must be prepared to meet Nevada’s specific requirements. This article discusses how to form Nevada LLCs that meet the requirements of Nevada law.
How are LLCs formed in Nevada?
A Nevada LLC begins its existence when it files its articles of organization with the Nevada Secretary of State. The articles of organization are a simple, short form that includes the minimum amount of information needed to notify the Nevada Secretary of State of the LLC’s existence. It does very little to structure the LLC to accomplish the owners’ objectives.
About Our Nevada LLC Formation Service
It is dangerous—and possibly malpractice—to rely solely on the articles of organization to properly form a Nevada LLC. Because we believe that every Nevada LLC must have a Nevada operating agreement to be properly formed, we do not offer standalone services to prepare and file a articles of organization only. Each Nevada LLC we form comes with a Nevada-specific operating agreement that is attorney-designed to structure your business in a way that meets your goals.
What is a Nevada operating agreement?
A Nevada operating agreement is a legal document that serves as a blueprint for LLC operations, including control of the LLC, distribution of profits, and the rights and duties of LLC members and managers.1
A Nevada operating agreement is the most important LLC formation document. It provides the framework for how the LLC will be governed. Without a valid operating agreement, LLC owners are left to the default provisions of the Nevada LLC act to govern the most crucial LLC planning opportunities. A well-drafted operating agreement should:
- Specify who controls the LLC and how the LLC may act. Different states have different default laws governing control of the LLC. To avoid relying on these fallback provisions, the operating agreement should specify the management structure and be clear about what is necessary to constitute an action by the LLC. The management structure should also be designed with creditor protection in mind. When structured properly, a manager-managed structure can provide enhanced creditor protection.
- Provide clear rules for profit distribution. Different states have different laws regarding how profits and losses are allocated among the members of an LLC. These laws may not match the member’s intent. The operating agreement should specify the member’s economic rights. Depending on how the LLC is structured, tax distribution provisions may be necessary to deal with the phantom income problem.
- Maximize liability protection. The operating agreement should be designed to provide maximum protection to both the LLC itself and each member (both inside and outside liability). This requires strategic thinking to ensure that the operating agreement reflects the LLC’s substantive business arrangement while simultaneously making the LLC unappealing to a creditor if a dispute arises. Care should also be given to adequate LLC documentation—including an organizational action without a meeting as discussed below–to prevent veil piercing claims.
- Define differences in voting rights for different classes of equity. If the LLC will have classes of equity that differ in either economic or voting rights, these classes should be created and clearly defined in the operating agreement.
- Protect against unintended spousal ownership. The family law of some states can give a spouse an interest in an LLC by operation of law. This may be unacceptable to other LLC members who don’t want to be surprised to find themselves in business with their business partner’s spouse. The operating agreement should include provisions and waivers to deal with unintended spousal ownership of the LLC.
- Clarify fiduciary duties. States have different approaches to fiduciary duties. Many rely on a patchwork of case law and statutes with lots of gray areas. The operating agreement should include customized fiduciary duty provisions that match the owners’ specific intent.
- Take advantage of tax flexibility. Of all types of business entities, LLCs offer the most flexible tax structure. The operating agreement should specify a tax-efficient tax classification to optimize tax-planning opportunities.
Attorney Practice Note: See our LLC Operating Agreement Checklist for a full list of issues to address in the Nevada operating agreement as part of the LLC formation process.
Want to form a Nevada LLC the right way?
Each LLC that we form comes with a Nevada-specific operating agreement to help ensure that the LLC is custom-designed to protect the owners from liability, provide for profit distribution, structure control of the LLC, maximize creditor protection, reflect the LLC tax classification, and properly structure the LLC to accomplish the owner’s legal goals.
What is the Nevada LLC act?
How does the Nevada LLC act relate to the operating agreement?
As stated above, the operating agreement is the most important LLC formation document for structuring a Nevada LLC. The Nevada LLC act assumes that the LLC will have a valid operating agreement to govern its business operations.
Most provisions of the Nevada LLC act are simply default provisions that serve as a fallback for LLCs that fail to plan properly. These default provisions are the Nevada legislature’s best guess about what the owners might want. These guesses rarely align with the owners’ specific goals in setting up the LLC.
Does the Nevada LLC act limit what the members can agree to in the operating agreement?
The Nevada Limited Liability Company Act requires a Nevada LLC operating agreement to “be interpreted and construed to give the maximum effect to the principle of freedom of contract and enforceability.”4 This language is similar to language used in other state LLC acts and, of itself, is not remarkable. But unlike most other states, the Nevada LLC act takes this language seriously. Where other state LLC acts include provisions that contradict freedom of contract, Nevada law contains relatively few restrictions on the ability of a Nevada operating agreement to govern Nevada LLCs.
A Nevada LLC operating agreement may—but is not required to—provide for any of the following:
- Rights to any person, including a person who is not a party to the operating agreement, to the extent set forth in the operating agreement;
- For the admission of any person as a member of the company dependent upon any fact or event that may be ascertained outside the articles of organization or the operating agreement, if the manner in which the fact or event may operate on the determination of the person or the admission of the person as a member of the company is set forth in the articles of organization or the operating agreement;
- That the personal representative of the last remaining member is obligated to agree in writing to the admission of the personal representative, or its nominee or designee, as a member of the company effective upon the occurrence of the event that terminated the last remaining member’s status as a member of the company;
- For the admission of any person as a member of the company upon or after the death, retirement, resignation, expulsion, bankruptcy, dissolution or dissociation of, or any other event affecting, a member or the last remaining member, or after there is no longer a member of the company; or
- Any other provision, not inconsistent with law or the articles of organization, which the members elect to set out in the operating agreement for the regulation of the internal affairs of the company.5
The operating agreement for a Nevada LLC may expand, restrict, or eliminate any duties that a member, manager, or other person owes to the LLC or another member or manager other than the implied contractual obligation of good faith and fair dealing.6
How much does it cost to form a Nevada LLC?
The cost to form a new Nevada LLC depends on three factors:
- Document preparation fees. Proper LLC formation requires preparation of a Nevada operating agreement that is tailored to the goals of the LLC owners, as well as an organizational resolution and related documents needed to structure the LLC. Although the articles of organization is a simple form that can be filled out online, the remaining documents—including the operating agreement and organizational resolution—involve legal considerations that require knowledge of the intricacies of Nevada LLC law.
- Filing fees. Each new Nevada LLC formation requires filing fees. The fee to file the articles of organization with the Nevada Secretary of State is $425.
- Registered Agent cost. As stated below, each Nevada LLC must appoint a registered agent to receive legal documents on the LLC’s behalf. Although nothing prevents a Nevada resident from serving as registered agent, many LLC owners prefer to use a registered agent for professionalism and to prevent junk mail. Nevada registered agent fees are usually $100.00 to $200.00 a year.
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What are the filing procedures for Nevada LLCs?
A Nevada LLC is officially formed when the LLC’s articles of organization is filed with the Nevada Secretary of State.7 An Nevada limited liability company can be formed by one or more organizers. The name and address of each organizer is required. Each organizer must sign the articles of organization.
Nevada law allows the articles of organization to be signed electronically (e-signed). Instead of mailing or hand-delivering a hard copy, the organizer may submit the articles of organization electronically for e-filing. There is no publication requirement.
What ongoing reporting requirements apply to Nevada LLCs?
Nevada law requires the LLC to file an Annual List and State Business License Application year by the end of the LLC’s anniversary month. The fee for the Annual List and State Business License Application is $350.00.
Does Nevada law recognize series LLCs?
What is a member of a Nevada LLC?
An owner of a Nevada LLC is called a member.9
Who makes decisions on behalf of a Nevada LLC?
A Nevada LLC may be governed by the members (member-managed), or LLC managers may be appointed to govern the day-to-day affairs of the LLC.10
Attorney Practice Note: While the member-managed structure may first seem more intuitive for small LLCs, structuring an LLC as a manager-managed LLC can provide enhanced creditor protection compared to member-managed LLCs.
How may LLC members and managers act on behalf of the LLC?
Nevada LLC members and managers may act by formal meeting and vote, but that is relatively uncommon. In most cases, members and managers will sign an action without a meeting agreeing to actions on behalf of the LLC.
What is a Nevada registered agent?
A Nevada registered agent is a Nevada resident or business organization that is designated to receive legal notices from the Nevada Secretary of State on behalf of the LLC. Each Nevada LLC must appoint a registered agent to receive service of process on the LLC. The registered agent must sign a Certificate of Acceptance of Appointment accepting the appointment before the organizer files the articles of organization.
What is a membership interest under the Nevada LLC act?
In Nevada, a member’s economic interest in an LLC is called a membership interest. The Nevada LLC act recognizes both economic interest and non-economic interests in an LLC. It refers to an economic interest as member’s interest.11 It does not specifically define a non-economic interest.
What fiduciary duties apply to Nevada LLC members and managers?
Fiduciary duties are an important—but often overlooked—aspect of LLC law. A fiduciary duty is a responsibility to act on behalf of another person and, where necessary, to put the other person’s interest ahead of one’s own.
It is not uncommon for LLC members and managers to be involved in different activities, some of which could be viewed as adverse to the interest of the LLC or other members or managers. Failure to consider fiduciary duties in the operating agreement can create unexpected liability for breach of fiduciary duty claims.
The Nevada LLC act does not clearly define the scope of fiduciary duties that apply to LLC members and managers, but courts may find a fiduciary duty in certain circumstances. In this situation, it is particularly important for the operating agreement to specify whether fiduciary duties should be included and, if so, to define the scope of a member’s and manager’s fiduciary duties.
Nevada law does not allow a Nevada operating agreement to indemnify members or managers for. actions that are not taken in good faith and in a manner in which the member or manager reasonably believed to be in or not opposed to the best interests of the company.12
Does Nevada law permit LLC domestication or conversion?
A Nevada LLC may effectively move to another state by changing the law that applies to the LLC—a process known in Nevada as conversion.13
May an LLC member withdraw (voluntarily dissociate) from the LLC?
LLC law is based in large part in partnership law, which (unlike corporate law) treated partners as having an obligation to continue to participate in the venture. A member that wants to divest himself of his interest in the LLC and cease to be a member may sometimes do so by withdrawal.
The default provisions of the Nevada LLC act do not prohibit a member’s withdrawal from the LLC. While the operating agreement may prohibit a member from withdrawing from the company, a member may still wrongfully withdraw from the LLC. If the resignation or withdrawal of a member violates the operating agreement, the amount payable to the member who has resigned or withdrawn is the fair market value of his or her interest reduced by the amount of all damages sustained by the company or its other members as a result of the violation. The company may defer the payment for so long as necessary to prevent unreasonable hardship to the company. The articles of organization or the operating agreement may change these default rules.14
Does Nevada LLC law allow member expulsion?
The default provisions of the Nevada LLC act do not deal with the LLC’s ability to involuntarily dissociate (expel) a member from the LLC in certain circumstances. The operating agreement may prohibit or allow expulsion.
What charging order protection applies to Nevada LLCs?
LLCs benefit from a feature known as charging order protection. Charging order protection limits the ability of a member’s creditors from seizing LLC assets (outside liability protection). Under the Nevada LLC act:
On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the member’s interest with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the member’s interest.15
A charging order is the exclusive remedy for creditors of a member.16
What creditor notification requirements apply upon dissolution of a Nevada LLC?
A Nevada LLC is dissolved by filing articles of dissolution. The Nevada LLC act does not require notice to creditors on liquidation. Nevada rules for involuntary windup17 and grounds for judicial dissolution 18 should also be considered.
- See NRS 86.101.
- Title 7, Nevada Revised Statutes.
- Chapter 86 of the Nevada Revised Statutes, NRS 86.011 et seq.
- NRS 86.286(4)(b).
- NRS 86.286(4)(a).
- NRS 86.286(5).
- NRS 86.022.
- NRS 86.296.
- NRS 86.081.
- NRS 86.071.
- NRS 86.091.
- NRS 86.421.
- NRS 92A.105.
- NRS 86.335.
- NRS 86.401(1).
- NRS 86.401(2).
- NRS 86.491.
- NRS 86.495.