A restricted LLC is a type of LLC used as a vehicle for transferring assets (like properties, businesses, or land) and is only available in Nevada. Restricted LLCs have restrictions on when profits from the LLC can be paid out. The main benefit of a restricted LLC is that it allows for its owners to pass on assets tax-free. We break down everything you need to know about restricted LLCs in our restricted LLC guide.
What is a Restricted LLC?
A restricted LLC is a type of LLC only available in Nevada since 2009. Many people use restricted LLCs for transferring ownership of something like a house, business, car, or other asset to a family member. Using a restricted LLC to pass assets between family members helps avoid taxation and liquidation or for estate planning purposes because of its strict contribution laws. Here’s how it works:
- Distribution of profits cannot be made to its owners for at least ten years unless otherwise stated in the articles of organization.
- During those ten years, LLC profits aren’t taxed.
- The ten year period starts on the date of formation or conversion to a restricted LLC.
- Lower valuation discounts on assets passed between members and ability to gift assets with a lower tax rate.
The main benefit of using a restricted LLC is that it allows you to avoid paying taxes on profits for ten years. This can be helpful for passing assets from person to person (or family member to family member).
Setting Up a Restricted LLC
To set up a restricted LLC, you’ll fill out the Nevada Articles of Organization and select the box for Restricted LLC. Before you file your paperwork with the state, you’ll want to consult with a tax professional to choose the best distribution restriction for your restricted LLC. How you set up your distribution restrictions is up to you. For example, you can opt to have your distributions paid out in five years or have a percentage of distributions paid out throughout ten years. If you don’t state on your articles when your restricted LLC will make distributions, Nevada will set it at the regular ten year restriction.
Learn how to start a Nevada LLC.
Can I change my Nevada LLC to a restricted LLC?
Yes. You can amend your regular LLC to a restricted LLC by filing a Certificate of Amendment ($175) with the Secretary of State.
Do I need an EIN for my restricted LLC?
Yes. Since restricted LLCs are used for estate planning and passing assets between family members, they often have to pay estate or gift taxes. These taxes are collected when transferring assets from one person to another or in the case of someone’s death.
Check out our How to Get an EIN Guide.
Do I file an annual report for my restricted LLC?
Yes. All Nevada LLCs must file a Nevada Annual Report ($350) each year at the end of your anniversary formation month.
What is the difference between a restricted LLC and a series LLC?
Restricted LLCs are LLCs with restrictions on when owners can make distributions. They’re often used for estate planning or as an asset vehicle. A Nevada Series LLC is an LLC with one or more divisions (called “series”) within itself, each with its own liability, assets, and debt. Series LLCs are often used to separate out assets—for example, several rental properties—so that if one series is sued, the assets held within the other series are shielded.
Learn more about Series LLCs.
Restricted LLC Taxes
One of the biggest perks of setting up a restricted LLC is the tax-free interest. What you put into your restricted LLC remains untaxed while distributions are locked. So, if you’ve elected to have your restricted LLC only make distributions after five years, for those five years, you pay no Nevada state taxes. Once the assets are distributed from your restricted LLC, you’ll have to pay a gift or estate tax, but at a significantly lower rate due to restricted LLCs valuation discounts. A valuation discount applies to the fair market value of a company’s value or assets.
How do I dissolve my restricted LLC?
To dissolve a restricted LLC, you’ll need to take the same steps as dissolving a regular LLC. To dissolve an LLC in Nevada, you’ll file a form called Certificate of Dissolution/Cancellation Limited Liability Company.
Do I have to wait ten years before giving distributions for my restricted LLC?
No. You may specifically state that your restricted LLC will give out distributions on another schedule as long as it’s within ten years.
What’s the difference between a Wyoming Close LLC and a Nevada Restricted LLC?
A Wyoming Close LLC is an LLC structure often used by single-member LLCs or small family businesses as a way of keeping and passing control without as many restrictions. There is no restriction on contributions with a Wyoming Close LLC like there is with a Nevada Restricted LLC.
Learn more about Wyoming Close LLCs.
Is a Pennsylvania Restricted Professional LLC the same as a Restricted LLC in Nevada?
No. A Pennsylvania Restricted Professional LLC is Pennsylvania’s name for LLCs that offer professional services that are governed by licensing boards such as doctors, therapists, and accountants.
Can I only use my restricted LLC for passing assets between family members?
No. Technically, you could use a restricted LLC for doing regular business, but profit distributions would be tightly controlled. Starting a traditional Nevada LLC generally works better for most business owners.
You may use your restricted LLC for passing assets to people that are not family members. However, most restricted LLCs are used for estate planning between families and as a tax-free vehicle for transferring assets.
Can I move my restricted LLC to another state?
No. You can not move your Nevada Restricted LLC to another state since no other state recognizes the structure. Trying to register your Nevada Restricted LLC in another state will change it into a regular LLC without the restrictions, benefits, or advantages of the original structure.