How to Form an LLC in Nebraska!

Nebraska requires that all LLCs have one of the following in their name: “limited liability company,” “limited company,” “L.L.C.,” “L.C.,” “LLC,” or “LC.” For the full designators, “company” can be abbreviated “co.” and “limited” can be abbreviated “ltd.” Additionally, the name cannot be similar to any other business entity that is organized, incorporated, or authorized to do business in Nebraska.

The certificate of organization is the document that will register your LLC with the Secretary of State. This is submitted with a $100 filing fee and must contain the name of the LLC, the address of the initial designated office, the name and address of the registered agent, and any other provisions the organizer includes.

Nebraska law says that every LLC by default has an operating agreement that is written, oral, or implied, and does not need to be referred to as an operating agreement. This agreement will determine how the internal affairs and business of the LLC are conducted, so it is recommended that you have all members of the LLC execute a written operating agreement.

EIN: Any Nebraska LLC with multiple members or employees will need to obtain an Employer Identification Number for tax returns, either through an incorporation service or directly from the I.R.S. itself.

Biennial Report: Every odd-numbered year, Nebraska LLCs must file a biennial report with the Secretary of State. This biennial report must contain the name of the LLC, the address of the designated office and the name and address of the registered agent, and the address of the LLC’s principal office. There is no fee for this filing.

Nebraska Has a Growing Economy

Each year, Nebraska forms over 4,000 new LLCs.  Nebraska has over 28,000 active LLCs.  The U.S. Chamber of Commerce ranks Nebraska first for having the best tax environment for new firms, and as the ninth best tax environment for mature firms.  It also ranks Nebraska as sixth for overall taxes and regulation, and sixth for productivity growth.

The Nebraska LLC Act provides for an LLC’s unlimited life.  Section 21-104 states an LLC has a perpetual duration.  An LLC’s existence can therefore outlive its members’ lifetimes.

Dealing with Business Partners

The Nebraska LLC Act gives members contractual freedom to customize the duties each party to the LLC agreement owes to the other parties.  Sections 21-110 and 21-138 provide default rules that members and managers owe limited fiduciary duties of care and loyalty.  The duty of care requires members and managers to “act with the care that a person in a like position would reasonably exercise under similar circumstances and in a manner the member reasonably believes to be in the best interests of the company.”  The duty of loyalty requires members and managers to not compete with the LLC, use the LLC’s property for personal use, deal with the LLC on behalf of people with interests that are adverse to the LLC, or usurp any of the LLC’s business opportunities.

But the Act gives members and managers contractual freedom to “opt out” of most of the default rules.  Section 21-110 provides that although an LLC agreement may not completely eliminate the duty of loyalty or the duty of care, it may narrow them if not manifestly unreasonable.  For example, an LLC agreement may (1) identify specific types or categories of activities that do not violate the duty of loyalty; (2) alter the duty of care, except to authorize intentional misconduct or knowing violation of law; or (3) alter any other fiduciary duty.

In addition, the Act contains a “safe harbor” provision for “interested” transactions, which are transactions between an LLC and one or more of its members or managers.  It provides that an LLC agreement may “specify the method by which a specific act or transaction that would otherwise violate the duty of loyalty may be authorized or ratified by one or more disinterested and independent persons after full disclosure of all material facts.”

The result is the Act protects both majority and minority members.  It protects minority members because an LLC agreement may not completely eliminate fiduciary duties, even though it may alter them and identify activities that do not violate them.  These provisions make minority interests safer investments and therefore more valuable.

The Act protects majority members because it provides a “safe harbor” to facilitate contracts and transactions between an LLC and one or more of its managers or members, or an entity in which they own an interest, if the contracts or transactions meet minimum disclosure, approval, or fairness requirements.  These rules give majority members and the LLC certainty in business planning and the ability to take advantage of mutually beneficial opportunities.

Preventing Unwanted Business Partners

The Nebraska LLC Act allows members to protect their control of an LLC.  An LLC agreement may prohibit members from transferring their membership interests.  But if an LLC agreement does not prohibit it, a transfer does not dissolve the LLC or entitle the transferee to participate in management or to become a member.  Instead, the transferee may receive only the distributions to which the transferor would have been entitled, and the non-transferring members must consent to the transferee becoming a member.

Creditors Only Get Passive Rights, Not Control Rights

Section 21-142 provides that if a judgment creditor of a member obtains a charging order against the member’s membership interest, the charging order is only a lien on the membership interest.  The judgment creditor has only the right to receive distributions which would otherwise be paid to the member.  A court may foreclose on the lien and order the member’s transferable interest to be sold, but a purchaser at the foreclosure sale obtains only the transferable interest and does not become a member.  Section 21-142 is the judgment creditor’s sole and exclusive remedy.

Furthermore, section 21-145 states that a person ceases to be a member of an LLC when the person makes an assignment for the benefit of creditors; becomes a debtor in bankruptcy; or fails to contest a petition seeking the appointment of a trustee, receiver, or liquidator over his or her property.  These events are considered “events of dissociation.”

A Nebraska LLC must continuously maintain an agent for service of process in the state.  A commercial registered agent service may act as a Nebraska registered agent.

Because of the advantages of forming an LLC in Nebraska, over 4,000 new LLCs are formed in the state each year. Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in Nebraska.  What are the advantages of a Delaware LLC?  (Delaware LLC Advantages).  We can then help you file an application for registration to do business in Nebraska with your Delaware LLC (Form Delaware LLC).