SB 405 Bolsters Nevada Protection

SB 405 went into effect on October 1, 2011. It strengthens the asset protections available to Nevada-based entities. The updated charging order language affects Nevada Limited Liability Companies (LLCs), Corporations and Limited Partnerships (LPs). The law changed as follows: the new language in the statute makes the charging order the exclusive remedy of a judgment creditor- including single member LLC’s and single shareholder corporations. A charging order is a remedy issued by the court giving the creditor a lien over the debtor’s interest in the entity. As such, this new language solves the problem brought forth in case law (specifically single-member LLC cases). Using the generous provisions provided by Nevada statute, many opportunities for asset protection and estate planning can be designed to maximize protection and take advantage of the charging order as the exclusive remedy, discouraging litigation and encouraging settlement.

Main Advantages of Forming Entities Post SB 405: No Equitable Remedies Allowed

Most significantly, SB 405 adds key language to the entity statues specifically stating that no other remedies may be applied. Equitable remedies have served to allow a court to evade the “charging order as the exclusive remedy” language in the past. Equitable remedies are court-granted remedies that require a party to act or refrain from performing a particular act. Under the doctrine of limited liability, a corporate entity is liable for the acts of a separate, related entity (or individual) only under extraordinary circumstances, commonly referred to as piercing the corporate veil. Federal common law typically involves a two pronged test for piercing the corporate veil: the party sought to be charged must have used its alter ego to perpetrate a fraud or have so dominated and disregarded its alter ego’s corporate form that the alter ego was actually carrying on the controlling party’s business instead of its own. In the Ninth Circuit, cases suggest (at least in California cases), that fraudulent intent in incorporation need not be shown to pierce the veil, as long as it can be shown that the separate identity of the corporation has not been respected and that respecting the corporate form would work an injustice on the litigants.   The test for alter ego liability is almost identical to the veil-piercing test.  Alter ego has been defined as a lack of attention to corporate formalities, commingling of assets and intertwining of operations. Alter ego requires demonstrating that the two corporations (or individual and corporation/company) functioned as a single entity. Applying this notion, the court could set aside the protection afforded by the corporation or company by ordering that the company or corporation is the owner’s “alter ego” then piercing the corporate veil by stating that the company and the individual are one in the same (and going after the other’s assets in satisfaction of the judgment). Of course, veil piercing and alter ego concepts are separate and distinct. Piercing the corporate veil allows the court to find A vicariously liable for B’s debts. By contrast, a contention that A is B’s alter ego asserts that A and B are the same entity. Liability then is not vicarious but direct. Most other forums do not specifically disallow the court from applying equitable remedies and, as such, the court would have discretion to seek piercing the corporate veil under theories such as reverse veil piercing, alter ego, constructive trust and the like.  Of note is that one exception to SB 405 was made. Courts are allowed to apply the “alter ego” theory as the only equitable remedy as to corporations (not limited partnerships or LLCs).  As such, Nevada LLCs and LPs continue to be a favored structure for ease of management and asset protection.

Available Opportunities for Planning

SB 405 creates numerous planning opportunities for current business owners and those looking to create entities. Citing the precedent reached in Albright, A-Z Electronics, Modanlo and Olmstead among others, many estate and business planners in the past have been hesitant to utilize single member LLCs because a Court may state that a single member LLC doesn’t enjoy the charging order as an exclusive remedy. Per SB 405, this loophole is now specifically closed by statute. Additionally, out-of-state entities may enjoy protection as well. To bolster the protection provided by a foreign entity, there are many options available:

Start Over In Nevada

A client may choose to “start from scratch”, so to speak, and re-form the company here in Nevada, dissolving the foreign entity. This may be a good choice if the assets themselves are easily transferable.

Domesticate the Foreign Entity in Nevada

If the assets are hard to transfer (or if the entity owns many types of assets), it may be easier to domesticate the entity in Nevada, taking advantage of our favorable laws. In that instance, the individual assets would not need to be transferred, making it simple to effectuate.

Form a Nevada Holding Company

This type of “hybrid” option involves forming a Nevada entity, such as an LLC, and transferring ownership of the foreign entity to the Nevada entity.  As such, no individual assets would need to be moved and the companies would enjoy Nevada-based protection. This is a great choice for clients who have a number of foreign entities or existing Nevada corporations.

What do I do if I have a corporation?

LLCs and LPs have been favored over corporations by many planners because of greater creditor protection. The alter-ego theory cannot be applied against LLCs or LPs, but can be applied against a corporation. Clients who have foreign and Nevada corporations would still like to make use of the protections now available under SB 405 to increase their creditor protection. The options above can still be used, relatively easily and with minimal expense. To conclude, Nevada’s passing of SB 405 greatly enhances its creditor protection laws for Nevada LLCs, LPs and corporations by excluding all potential equitable remedies (with the exception of the alter ego remedy for corporations).  It goes even further by stating that single member or single shareholder companies enjoy the limits of a charging order remedy, therefore setting our laws above and beyond the laws of the rest of the country.

Tiffany N. Ballenger, Esq.

Black & LoBello on AM720 KDWN

Tune in as Black & LoBello offers free legal advice on a wide range of topicsClick here to listen to the Legal Hour on KDWN AM720 from January 18th, 2012 in which Managing Partner, Tisha Black Chernine, Esq., discusses some of the different fraud schemes related to the real estate crisis (2:00)(14:20), whether AB 284 can help during a short sale (10:35), steps to take when setting up a small business (17:28), rent-to-own properties (30:50) and strategy for renting properties (34:48).

Please tune in to AM720 KDWN’s “Legal Hour,” everyday, from 9 AM to 10 AM.  Listen live on the radio or online.   Feel free to call in with your comments or questions at 702-257-5396.

To listen to past shows, visit our Media page.

Is setting up an LLC the right move for my business?

Steven Pacitti, Esq., of Black & LoBello in Las Vegas, Nevada explains how an LLC should be used to achieve the goals of a business.

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As part of an asset protection plan, people may place certain assets into a single member limited liability company (LLC) with the belief that these assets are protected from individual creditors. However, in the bankruptcy context, a single member LLC will not provide any asset protection for a person from their individual creditors.  In multiple jurisdictions, bankruptcy courts held that, where the debtor was the sole member and manager of the subject LLC, the Chapter 7 Trustee could seize control of the LLC and may cause the LLC to sell the assets of the LLC.

Nevertheless, in each of these cases, the bankruptcy court treated the single member LLC differently than an LLC with multiple members.  In cases where a single member files for bankruptcy while other members of a multi-member LLC do not, and where the non-debtor members do not consent to a substitute member status for a member interest transferee, the bankruptcy estate is only entitled to receive the share of profits or other compensation by way of income and the return of contributions to which that member would otherwise be entitled.

However, before adding a second member to an LLC, be aware of the “peppercorn” membership interest.  A “peppercorn” membership interest is when the LLC owner gives a third party a small interest in the LLC for the sole purpose of avoiding or hindering a creditor from collecting.  In this context, a bankruptcy court will avoid the transfer of any ownership interest in the LLC to the third party, which would create a single member LLC again, and then subsequently allow the Chapter 7 Trustee to seize control of the LLC and liquidate its assets.

In closing, before transferring all personal assets to an LLC, make sure the LLC has more than one member and that all members acquired their membership interests for equitable consideration. If these steps are followed, then even in bankruptcy, an LLC can shield personal assets from individual creditors.

Randy M. Creighton, Esq.

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An inside liability comes from assets owned by the company or from behavior performed by the company.  These liabilities are trying to get up and out to your personal assets.  An outside liability, on the other hand, comes from assets owned by you, individually, or from your individual behavior.  These liabilities are trying to get down and in to your company.  

With inside liabilities, the “corporate shield” will often prevent these lawsuits from invading your personal assets.  This is true for corporations and LLCs.  However, if you are personally responsible for an outside liability, will the assets in the company be subject to liquidation?  Once you have lost the lawsuit, you will be examined in the Debtor’s Exam.  In that examination, the opposing party may ask you virtually any question it wants regarding what assets you owned.

If you own a Nevada LLC, the judge can only issue a charging order to the creditor.  This means if and when there is a distribution from the LLC to the owner, that distribution will belong to the creditor. Until the passing of Senate Bill 242 (codified as NS 21.090 and 78.746), charging order protection was limited to LLCs and partnership entities.  Now, closely-held corporations enjoy the same protection!

If properly formed, the manager of the LLC will be the only one who determines if there is going to be a distribution.  If there is a charging order outstanding, the manager (client) will not make a distribution so the creditor receives no assets.  To make matters worse, the creditor may be liable for any income taxes of the LLC under IRS Revenue Ruling 77-137. 

Tiffany N. Ballenger, Esq.

What To Do With Your EIN When Hiring New Employees

Job huntRecently we were asked if a single-member limited liability company (LLC) has to get a new EIN after it hired an employee.  Again we provide the typical lawyer’s answer, which is “it depends.”  The Internal Revenue Service (IRS) rules regarding this situation are as follows:

Single Member LLCs with Employees.  For wages paid on or after January 1, 2009, single member/single owner LLCs that have not elected to be treated as corporations may be required to change the way they report and pay federal employment taxes, wage payments, and certain federal excise taxes. On August 16, 2007, changes to Treasury Regulation Section 301.7701-2 were issued. The new regulations state that the LLC, not its single owner, will be responsible for filing and paying all employment taxes on wages paid on or after January 1, 2009.  These regulations also state that for certain excise taxes, the LLC, not its single owner, will be responsible for liabilities imposed and actions first required or permitted in periods beginning on or after January 1, 2008.

A single member LLC has been filing and paying employment taxes under the name and EIN of the owner, and no EIN was previously assigned to the LLC, a new EIN will be required for wages paid on or after January 1, 2009.  If a single member LLC has been filing and paying excise taxes under the name and EIN of the owner and no EIN was previously assigned to the LLC, a new EIN will be required for certain excise tax liabilities imposed and actions first required or permitted in periods beginning on or after January 1, 2008.  The following examples may assist in determining if a new EIN is required:

  • If the primary name on the account is John Doe, a new EIN will be required.
  • If the primary name on the account is John Doe and the second name line is Doe Plumbing (which was organized as an LLC under state law), a new EIN is required.
  • If the primary name on the account is Doe Plumbing LLC, a new EIN will not be required.

You will be required to obtain a new EIN if any of the following statements are true.

  • A new LLC with more than one owner (Multi-member LLC) is formed under state law.
  • A new LLC with one owner (Single Member LLC) is formed under state law and chooses to be taxed as a corporation or an S corporation.
  • A new LLC with one owner (Single Member LLC) is formed under state law, and has an excise tax filing requirement for tax periods beginning on or after January 1, 2008, or an employment tax filing requirement for wages paid on or after January 1, 2009.

You will not be required to obtain a new EIN if any of the following statements are true.

  • You report income tax as a branch or division of a corporation or other entity, and the LLC has no employees or excise tax liability.
  • An existing partnership converts to an LLC classified as a partnership.
  • The LLC name or location changes.
  • An LLC that already has an EIN chooses to be taxed as a corporation or as an S corporation.
  • A new LLC with one owner (single member LLC) is formed under state law, does not choose to be taxed as a corporation or S corporation, and has no employees or excise tax liability.  NOTE:  You may request an EIN for banking or state tax purposes, but an EIN is not required for federal tax purposes.

Carlos L. McDade, Esq.

Legislative Update-New Business Laws in Nevada

Effective July 1, 2009

Registered Agent Resignation (Senate Bill 55)

Title 7 of the Nevada Revised Statutes (NRS) no longer requires a registered agent to provide the name and address of each entity noticed of a resignation. The Registered Agent will provide the Secretary of State with its RA resignation form, a written affidavit that includes the name of each entity from which it resigns but excludes the contact information of each entity.

Cancellation of Filing Prior to Process Completion (Senate Bill 55)

The Secretary of State may charge a cancellation fee of $50 on each unprcessed filing for which a customer wishes to cancel. 

Filing, Default and Revocation Notices (Senate Bill 55)

In an effort to further standardize notification processes, the Secretary of State will no longer provide a blank form with mailed notifications. Forms may be obtained by visiting their website at Electronic notification and delivery of lists due will still be available to those registered agents that have signed up to be commercial registered agents pursuant to NRS Chapter 77. 

Domestication of non-Nevada Entities (Senate Bill 55)

Non- Nevada entities desiring to domesticate under Nevada Law may do so using the provisions of NRS 92A.270. Previously these provisions only applied to non-U.S. entities, but may now be used for the domestication of non-Nevada entities both in and out of the United States. Forms will be updated and available at

Charging Order Changes (Senate Bill 55)

Changes were made to the charging order provisions regarding number of stockholder requirements and the rights of assignees and the preclusion of a judgment creditor from participating in the management of a corporation or becoming a director of a corporation. While this will have no effect on the Secretary of State’s filing processes, it does offer additional protection to the shareholders of a corporation.

 Effective October 1, 2009

Doing Business in Nevada without Proper Registration (Senate Bill 350)

Foreign and domestic business entities and those businesses purporting to do business in the state without filing organizational documents with the Secretary of State are subject to a fine of from $1,000 - $10,000. The Secretary of State now will contact the district attorney or the Attorney General to commence action to recover the fine.

“Restricted” designation for Limited Liability Companies and Limited Partnerships (Senate Bill 350)

Limited Liability Companies and Limited Partnerships may elect to be restricted. Designation requires certain conditions. Forms will be amended to include a place to designate the restriction and made available prior to October 1, 2009.

Payment & Issuance of State Business License Fee (Assembly Bill 146)

The State Business License applications, renewals and related fees will be collected and issued by the Secretary of State. Pursuant to AB 146 passed by the 2009 Nevada Legislature, the authority for the State Business License was transferred from the Department of Taxation to the Secretary of State. The due date of the application or renewal of the business license is based upon the due date of the initial or annual list, whichever is applicable, required to be filed with the Secretary of State. Business entities that are not required to file organizational documents or an initial or annual list of officers with the Secretary of State, such as sole proprietorships and general partnerships will also be required to file for the State Business License with the Secretary of State when they commence business in Nevada and renew every year by the end of the month in which the anniversary of their initial registration falls. The State Business License fee increased from $100 to $200 as of July 1, 2009, however, the Secretary of State collection is not effective until October 1, 2009. The Department of Taxation will handle any new license application or renewals of the State Business License through September 30, 2009


The information contained on this website is designed to enable you to learn more about the services that Black & LoBello offers to its clients. These materials do not, and are not intended to, constitute legal advice, nor are they intended as a source of advertising or solicitation. Your use of this website does not create or constitute an attorney-client relationship. You should not consider these materials to be an invitation for an attorney-client relationship. Further, you should not rely on the information provided on this website without first obtaining separate legal advice.

Tisha Black Chernine awarded for
Mountain States Rising Stars 2011

Michele T. LoBello awarded for 
Nevada Super Lawyers 2007

Black & LoBello is an AV® Preeminent rated, locally owned, full service law firm in Las Vegas, Nevada.