Is a C-Corp, LLC, Partnership or Sole Proprietorship the best business model for a medical marijuana facility?
In June 2013 Nevada passed a law allowing for-profit medical marijuana facilities including dispensaries and cultivations. Pursuant to the law individuals and companies will be applying for licenses to open a medical marijuana facility. The application process will occur in spring or summer of 2014. The time to prepare for submitting your application is NOW!
One main question that people ask is what type of business structure is ideal for a medical marijuana dispensary, cultivation or production facility. There are many options including: C-Corp, LLC, partnership, and sole proprietorship. Each type of structure has benefits and drawbacks. In structuring your business and preparing your application there are some considerations:
Sole Proprietorship and Partnership
The benefit of a partnership and sole proprietorship is that it is very informal. There are not very many requirements to start up such a business. However, the drawback is that there is very little legal protections for these types of businesses. If the business becomes liable for a debt or judgment, the personal assets of the individual could be used to satisfy the debt. Therefore, the person’s car, house, etc. could be at risk.
Limited Liability Company (LLC)
A limited liability company is a business structure that protects an individual’s assets. For a dispensary or cultivation facility, this is an important features and there are many unknowns in this market especially in light of the product still being illegal federally. This type of business structure provides flexibility (there can be one or one hundred members). There is also less reporting and meeting requirements. However, for some individuals an LLC does not provide enough structure. There are some tax benefits and drawbacks for an LLC so it is always advisable to discussion your business structure with an accountant.
A C-Corporation is a formal business structure that has shareholders (owners) and directors (the individuals driving the direction of the company) and officers (the people making the day to day decisions). A C-Corporation is a separate legal entity and therefore, like an LLC, provides limited liability for the individuals involved. Unlike an LLC, the C-Corp has many formalities. There must be an annual meeting of shareholders. Directors will have meetings. Therefore, often groups of individuals choosing to work together in a business venture choose a C-Corp over an LLC. However, as with the LLC, there are tax implications and therefore it is always advisable to consult with an accountant.
When deciding what business structure to use with your medical marijuana facility, it is always a good idea to consult with an accountant and an attorney. The attorneys at Connor & Connor Pllc are licensed to practice in Nevada and are the attorneys to contact with your medical marijuana business questions. If you have questions about Nevada’s Medical Marijuana laws, please contactthe attorneys at Connor & Connor PLLC today!