Hello and welcome to [inaudible] trusted Trust Attorney Las Vegas podcast or we talk about all things involving trusting others, especially attorneys. Uh, I’m your host, Blake Johnson, and today we are going to be talking about a businesses liability or asset protection. So business liability or how businesses can help you protect your Trust Attorney Las Vegas assets. Specifically we’re going to be talking about the LLC limited liability company or the series LLC or series limited liability company. Now, the very first LLC was formed in 1977 in the state of Wyoming. And, uh, that was pretty groundbreaking. Um, I w I only did it because they were trying to attract new business to the state new capital and specifically in the oil companies, um, that were coming there and trying to build and develop. And so that’s why they did it. Uh, it was a long time before really any other states adopted the LLC, uh, because there was no idea on how the IRS was going to treat it from a tax perspective.
And it wasn’t until 1988 that the IRS finally ruled a saying that an LLC can actually be taxed as a partnership. So before had the LLC, there was three types of, uh, or three options you had for business. You could do what’s called a sole proprietorship, which means that you just go set out on your own. Uh, you don’t have a formal entity at all. It’s just you doing work. So, you know, probably the, um, you know, the lawn care guy that’s out there mowing the lawn grass himself, he is the entire company. Um, and he probably hasn’t incorporated all that and he might have a doing business as name, um, but doesn’t actually have a formal entity registered with the state. Uh, your other option, a next option is a partnership. So basically two people get together and say, hey, we’re going to go into business ourselves.
Um, it can either be a formalized partnership, meaning that it’s registered with the state or just by two people doing business together. It’s deemed to be a partnership. And, um, you know, your bold jointly liable for what goes on in that business. The last one is the corporation and that’s, yeah. Traditionally was the, the c Corp, uh, think of the, you know, the fortune 500 companies. It’s an actual entity. It’s treated like a separate person for tax purposes, all those things. So, um, let’s talk about those three options. From a liability standpoint, a sole proprietorship a is the most risky thing you can do because what you’re saying is I am the business and my personal assets are indistinguishable from the business because I am the business. And so if you go out and you’re working, you’re the lawn care guy and um, you know, you go and you mess something up on somebody’s house, guess what?
You’re personally liable for that damage. That also means that whoever is suing you can come after any personal assets that you may have, your house, your bank accounts, all that stuff. It’s not just limited to stuff with the business. The partnership from a liability standpoint is a little bit better. Um, because you’re sharing that liability with your partners so they, you know, if you guys get sued, it’s both of you are now responsible. But sometimes that opens you up to even more liability because if your partner does something stupid and it’s just a general partnership, now you’re personally liable. Your personal assets are on the line to cover his stupidity. Um, now there is a partnership called a limited partnership. And what that is is you have a general partner who actually does the managing and so on. They take on the full brunt of the liability and then you as a limited partner, basically you’re just a money guy.
You put money into the business, you’re considered a limited partner. You are to only be exposed to what money you put into the business. Uh, and then the corporation, uh, the reasons corporations came about as we talked about before is it was a way to limit the liability of the individuals putting in the money. Basically it’s saying, all right, here’s my contribution to the LLC. All right, I’m sorry to, to the corporation. And um, that’s the maximum amount that I would lose. And there’s no way they can come after me personally as long as it’s treated like an actual business. Because the business is in fact a separate entity. It’s the one doing the business. It has its own accounts, it has its own tax id number and so on. And so, um, for a while, a long time, those were the only options. When the LLC came along, um, it was so revolutionary because uh, it kind of combined the benefits of a partnership mean that you know, the whatever profits or losses flow through to the individual, um, versus the corporation which was taxed on its own.
And then any profits that were distributed to the individuals, those individuals were taxed again. So we call that double taxation. The companies taxed on the profits and then if they distribute any dividends out to the shareholders, those individuals are also taxed on that. But what the LLC does so well is it says, all right, we’re going to give you the liability protection of a corporation. So you’re limited to whatever you put into the business. They can’t come after your personal assets as, once again the caveat, as long as you treat it like an actual business and then you, the best part is now you’re taxed as a partnership, mean that you don’t get double taxed. You’re only taxed on the profits once instead of getting that double taxation that the corporation has. So that’s why that ruling from the IRS was so big in 1988 that said that an LLC can be taxed as a partnership.
Since then there’s been, um, the flexibility added that you can elect to be taxed as an s corp s Corp, uh, people think is in a separate entity. It’s really just a tax status. So there’s some, there’s some corporations that are taxed ass corp’s. Um, there’s some LLCs that are taxed ass corp’s. It’s really, um, depends with you. Between you and your CPA, what’s gonna be the best for you tax wise? Uh, the biggest thing is with an s corp you pay yourself salary or whoever the, the people working in the business a salary. And then, um, the profits are then, uh, um, given out, uh, you know, whether it’s quarterly, yearly, whatever you decide. Um, but you, you do have to have at least one employee in there and file the quarterly tax reports and so on. But by doing that, you say yourself, um, from having to pay the self employment tax.
And I believe that’s around three or three and a half percent. So, um, talked a lot about the LLC in Nevada. That LLC was adopted in 1991. Uh, and then the next big thing that we have is the series LLC. Uh, that was, uh, first put in a to effect in Delaware in 1996. And what the series LLC does is let’s say you have, um, you know, three rental houses before to get liability protection on each of those houses. You’d have to put each house in a separate LLC and that can get expensive because you have annual fees to the state. Let’s say, you know, here in Nevada, it’s three 50 year. So you do that times three for the three different houses that you own. That gets expensive. But that’s the only way to insulate each property from itself. Otherwise, if it’s all under one LLC, if someone gets hurt on one house, they can sue and they can take all three houses.
Okay. With the series LLC does so well is it’s basically says we’re going to put house one in series one house two in series two, how’s three in series three, but it’s all under one LLC. So we only have one filing with the state, one tax return to file with the IRS. But each series acts like its own LLC from a liability perspective so that they’re insulated from each other just as if they were in separate LLCs. But we don’t have all that added cost of three different uh, renewals to file in three tax returns to file. Now series all C’s are still a fairly new, uh, Nevada adopted the series LLC in 2005, and it’s kind of one of the forefront leaders in the series LLC. Utah’s also up there, um, they, they allow the series LLC. Uh, now the issue is, uh, there’s only 18 states right now that do allow the series LLC.
So what does that mean? Well, if you have property in those states that don’t allow this series LLC, we don’t know how those are going to be treated. If this, if you get sued, is the State gonna actually follow, um, you know, the state that you set up the LLC and protect that individual houses a series or is it just going to go say, nope, it’s just an LLC so they can come after any of the LLC assets. And so there’s still a lot of confusion. There hasn’t been a whole lot of case law out there to say how that’s going to be, uh, handled. Uh, so we’d like to err on the side of caution and say, you know, let’s do a series of LLC. If your properties are all in states that have that allow series LLCs, and if that’s the case, then then it works out great.
Um, you could also use it, you know, let’s say, um, you’re, you’re a restaurant owner and you’ve got multiple locations in the same city. That’d be a great way to use the series LLC. Uh, franchises within a, in the same state that has a series LLC. Uh, typically don’t like to do, you know, cross businesses. So you have multiple businesses going on and just cause it can cause some confusion. You do have to account for each separate business separately, separate accounts and that kind of thing to get the full protection. Um, so there is is some requirement, there are some requirements there. Uh, and it’s still, like I said, very, very new as far as how it’s going to be treated. Now the last thing I want to talk about is a different states LLC protection versus, um, you know, let’s say a Nevada LLC versus a California LLC in Nevada.
Like I said, it’s always been on kind of the forefront as far as LLCs and asset protection goes. And so, um, couple of key things is, um, you know, the first thing I’d say is, uh, we call it a charging order protection. So if you ain’t get individually get sued, can that person come after your LLC and sell the assets or sees the bank accounts or the real estate that would be in that LLC? Um, now in Nevada, I know for sure that that is protected. That’s what the charging order protection means. It says that, um, if you get sued individually and they win, the most that they can get is if you take profits out of the LLC and they become your personal property. It’s basically says we’re going to keep the LLC separate. And um, you know, they can’t force you to sell any assets to pay the debt.
They can’t force you to give them the bank account in that LLC name. So much better protection versus, I believe, don’t quote me on this, I’m not a California licensed attorney, so I can’t technically advise on, um, California law. But my understanding from what I’ve read is that if you are a single owner of an LLC, you would not get that protection because they truly, they treat the LLC as it’s part of you. Now, if you had a partner in that LLC that’s different. Um, but we’re just talking about single member LLC. So you individually set it up yourself or you and your spouse are basically considered the same, same person. Um, you do not have to have a separate person as the partner, um, to get that charging order protection. Um, the other way that Nevada is really good with the LLCs is indemnification.
And what that means is if the LLC gets sued and they also, um, try to attach it to the individual owners of the company, the LLC has to indemnify meaning basically protect them and cover any of the debts and they can’t go after the personal, uh, property. So, um, you know, each state has some level of protection with that. It’s just going to depend on, um, you know, that state’s law. So if your business isn’t, you know, actual real estate where it’s located in a state, um, or you’re doing business in and out of that state, you know, let’s say it’s an online business, then you can say, hey, like let’s shop around. Let’s find which, which state is going to have the best LLC, um, to help me get the most protection. And so that I’m the least exposed to any Trust Attorney Las Vegas lawsuits in that kind of thing.
So lots of, lots of digest there. Uh, LLCs and series Llcs, great, great new, not really new, but, um, still the newest form of a business entity, uh, for liability protection and um, you know, really awesome because it gives you the flexibility to decide how you want to be taxed. It gives you the flexibility of still getting the protection that you need, like a corporation and, um, you know, great, uh, asset protection as well. So a lot to digest there. Once again, each state is different. Highly recommend that you talk to an Trust Attorney Las Vegas in your state, um, who specializes in these business entities setups to know how those are gonna Affect you. Um, what the rules are. Do you need a partner to get that full protection or does a single member LLCs get that protection like it does here in Nevada? So, uh, that’s it for today with the limited liability company in the series limited liability company. I’m your host Blake Johnson, and we’ll talk to you next time.