Why Should You Incorporate in Nevada?
The number one reason Why Should You Incorporate in Nevada is the protection it provides to the owners of the Corporation. Whether it is a membership held Limited Liability Company or a stock held Corporation, the owners are not the responsible party to a lawsuit. Nevada has, by far, the best laws to protect owners of business entities. In the last 26 years, the corporate veil, in Nevada, has been pierced only twice. In both cases it involved outright fraud.
NRS 78.257 imposes penalties against using corporate records for purposes contrary to the well-being of the stockholders.
Nevada does not keep information on their residents or their business entities. Nevada does not share information with the IRS. Nevada has no reciprocity arrangement with the IRS. Other States, without restraint, provide all the information they have to the IRS on every resident and corporation.
Nevada corporations may issue stock for capital, personal property, real estate, services, leases or options. The Managers (for LLCs) or Directors (for Corporations) may determine the value of any of these transactions and their decisions are final.
- Nevada corporations may purchase, hold, sell or transfer shares of its own stock.
- Nevada Has No Corporate Income Tax
- No Taxes on Corporate Shares
- No Franchise Tax
- No Personal Income Tax
- No Franchise Tax on Income
- No Inheritance or Gift Tax
- No Unitary Tax
- No Estate Tax
- Nominal Annual Fees
- Competitive Sales and Property Tax Rates
- Minimal Employer Payroll Tax – 0.7% of gross wages with deductions for employer paid health insurance
Nevada’s Business Court
Developed on the Delaware model, the Business Court in Nevada minimizes the time, cost and risks of commercial litigation by:
- Early, comprehensive case management
- Active judicial participation in settlement
- Priority for hearing settings to avoid business disruption
- Predictability of legal decisions in commercial matters
What if my business is situated in another State?
Even if your business is located in another State, you still will want to form your business in Nevada. Nevada’s protection laws will follow into your own State. If your company is the subject of a law suit, the plaintiff will have to bring that suit to Nevada. This is a very expensive proposal. Most law suits will stop dead in their tracks because of the additional expense. Then, the plaintiff will have to prove fraud. There is Nevada case law where a corporation did not record any resolutions, minutes nor meetings, the company was had sparingly capitalized, commingled funds and still, the Nevada Courts protected the corporate veil! Nevada is a pro-business Sate, meaning they strongly protect the business owner. Other States are anti-business. If you have an obvious business, in your part of the country, you may have to register your Nevada Corporation in your State in order to do business. Going through the registration may well be worth the effort. This will usually cost somewhere between $250.00 and $800.00 to do the registration.
The number one reason to incorporate in Nevada is that the owners of a Corporation or LLC are not the defendants in a lawsuit. In the last few years, there has been an outbreak of lawyers in this country. In 1990, there were approximately 650,000 lawyers in this country, today we have over 1 million.
As soon as a business starts to prosper, it is presented with a frivolous lawsuit. Remember the woman who spilled coffee in her own lap and then won a settlement from McDonald’s? It costs thousands of dollars just to answer a complaint filed against your business. This can really adversely affect your bottom line. If this happens too many times, it could very well put you out of business!
Before a lawyer takes a case, they look for assets that they can seize. They don’t want to go to court. They are hoping you will just pay them off so they will go away. They want to make money the easy way. Sounds like extortion doesn’t it? Well, if your company does not have any assets to seize and the plaintiff is prohibited from going after your personal assets, the lawyer probably will not take the case. If a lawyer cannot find anything to sell or attach, it is doubtful that he will be paid, and that frivolous law suits does not get filed.
The lawsuit would have to be brought to Nevada and fraud would have to be proven. Because of this, the lawsuit may never be filed in the first place, because it would be much more expensive for the lawyers to pursue.
In many States, when there are not “sufficient” assets in the business, they will go after the personal property of the owners of the business entity to satisfy a judgment. Not in Nevada. In Nevada, the judgment is restricted to what that particular Corporation or LLC held in assets.
When you have a lot of equity, it is prudent to separate those assets into different Corporations or LLCs so you don’t have deep pockets for a lawyer to come after.
What is the difference between and shareholder and a member of an LLC?
If a personal (non-business) lawsuit is filed against a person who owns shares of stock in a corporation, the stock held by that person is considered personal property and can be awarded in a judgment.
If a personal (non-business) lawsuit is filed against a member of a Nevada LLC, the judgment can only be satisfied by a Charging Orders which is placing a lien on that person’s percentage of distribution from the LLC. The courts cannot force an LLC to liquidate their assets in order to satisfy the member’s judgment. They can only put a lien against any distributions the member will be taking from that company. By the way, when they put a Charging order against your LLC, they are responsible for the taxes on those earnings even if the LLC has no distributions. Most attorneys will not get a Charging Order because of this liability.