Why Incorporate in Nevada

This is the best part.

First, I would like to ask you: Is this business the main asset you will work to develop your net worth or retirement?

How many hours per day do you spend in your business?

Get ready for this! It is only $500 EXTRA to incorporate in Nevada first, then register in your state, and only $550 annually.

What about the two states’ fees? Doesn’t this defeat the purpose of this potential advantage?
Yes, if you want to save $40 per month; no, if you want more protection for your personal assets.

If your budget only allows you to form a complete formation in your home state with the state fees, that is much better than operating as a sole proprietorship. We can also help you in this case because we incorporate it in all 50 states.

Incorporating in your home state would make the most sense if you are a small business owner or contractor or have a side hustle.

California is experiencing a mass exit of residents moving to Nevada

It is not just to follow the Raiders but to escape California’s oppression and crazy taxes. A Californian can sell their home and move to Las Vegas, in most cases, for ⅓ the price, plus have a bigger home.

If you formed a Nevada LLC in this situation, foreign qualified into California, and later moved to Nevada, you would withdraw from California and continue operating only out of Nevada.

As a sole proprietor, you are responsible for all your business debts and liabilities, making you vulnerable to lawsuits that could wipe out your savings and assets. When you apply for a loan for a house, car, or credit card, the mere fact that you are being sued will render you a higher risk!

But when you incorporate, a corporation, by law, is a separate legal existence apart from its owners. Hence, as a corporate owner, you are not personally liable for the corporation’s debts or liabilities, and now a lawsuit against your corporation will protect your personal assets.

This is the primary reason you need to incorporate your business. But guess what? You get something for nothing. To gain the liability protection of a separate legal entity, like a corporation, you must do a few things correctly, such as the following:

1. You cannot co-mingle personal and business funds

For example, you cannot write a business check to pay for personal items.

2. You’ll need to do the formalities correctly.

A corporation can do everything you can do except act and think. The way a corporation acts and thinks is through written minutes and resolutions. If you don’t complete the minutes and resolutions correctly, a judge could decide you are not treating the corporation as a separate legal entity. Even if you own a one-person corporation and want to take a two-week business trip, the corporation should produce a resolution that authorizes you to go on that trip. For many, this does not make sense. Since they own the corporation, they feel they should be able to do whatever they want with their business. They can, but the corporation must approve whatever they do.

3. Proper capitalization of your corporation.

We have found cases where $157,000 was deemed too thinly capitalized for a corporation, and the corporate veil was pierced. 1
If a judge should decide that you did not do the above three items properly and they conclude your corporation is not an actual legal entity, the court could hold you personally liable for the corporation’s debts. This is called “piercing the corporate veil.”

Again, if this happens, you are back to “technically” being a sole proprietorship with UNLIMITED liability! Now, you could be financially paralyzed because of a judgment!

NEVADA OFFERS THE BEST PROTECTION AGAINST PIERCING THE CORPORATE VEIL

Incorporating in Nevada gives you the best protection against piercing the corporate veil THAN IN ANY OTHER STATE. (Delaware is also excellent, but when you combine the veil-piercing factor and protecting the board of directors factor, Nevada provides more protection).

Nevada appears like an iron fortress to your creditors. The corporate veil has only been pierced twice in Nevada in the last 34 years.

When you Incorporate in Nevada and register to do business in another state, let’s say, California, your attorney could tell you that you could get sued at any time. It will be in California, so you don’t need to incorporate it in Nevada. Your attorney may not explain that if you get sued and the plaintiff wants to go beyond the corporation (because there is not enough money in the corporation or its insurance). The plaintiff could decide to sue you personally. This is known as piercing the corporate veil.

UNDER THE INTERNAL AFFAIRS DOCTRINE, THEY CAN GO BACK TO THE STATE OF DOMICILE FOR PIERCING ISSUES.

Under the Internal Affairs Doctrine, “Courts traditionally look to the laws of the State of incorporation in resolving questions regarding a corporation’s internal affairs.

No Personal Liability of the Directors AND Officers to the Stockholders (only SIX (6) states protect both)*:

In 1987, the Nevada Legislature passed a revolutionary law that permits corporations to place provisions in their Articles of Incorporation that would eliminate officers’ and directors’ personal liability to the stockholders of Nevada Corporations.

This is one of the main reasons large companies like Citibank domicile in Nevada. Although Delaware and a few other states soon adopted lesser versions of this law, Nevada’s law remains among the most thorough in the country.

One last difference concerning what is known as “Inside Liability” needs to review. Most states have Director protection statutes, which allow for article provisions that eliminate director liability for certain fiduciary duty breaches to the corporation. In other words, directors automatically receive protection just by filing the articles because of the state statute.

Only a few states, Louisiana, Maryland, New Hampshire, New Jersey, and Virginia, have laws that apply to officers. ² Nevada’s protection is provided as a matter of law; that is, no article provision is necessary. The protection available for directors is equally applicable to officers. ³

In other words, when you file the Articles of Incorporation in Nevada, this protection is automatic. In contrast, in other states, you must write specific language into the Articles to protect. If you file the Articles independently or through an online Internet company, you will not get that protection.

In most states, including Delaware, article provisions can only cover directors. ⁴ When one is both a director and an officer. A director protection statute does not protect actions taken solely in an officer’s capacity. ⁵

According to David Mace Roberts & Rob Pivnick, in “Tale of the Corporate Tape: Delaware, Nevada, and Texas,” 52 Baylor L. Rev. 45 (2000), “Without a doubt on this subject, Nevada is more director and officer friendly than either Delaware or Texas . . .”

All Nevada corporations now have a Limitation of Liability statement for Directors and Officers imposed by law.

Note Nevada, in contrast to Delaware: When a Delaware corporation’s Articles of Incorporation do not contain a limitation of liability statement, the protection provided for directors from personal liability is the business judgment rule. The business judgment rule means that courts will not second-guess a corporation’s officers’ or directors’ decisions if those decisions are within their authority, have a rational basis, and are made in good faith, even if they are mistakes in judgment.

Also, in Delaware, a director is not protected for acts not in good faith. However, in Nevada, such acts are protected. In Nevada, when a director is not protected by a limitation of liability statement in the articles, s/he can still find solace in the business judgment rule. This is not so for officers of Delaware corporations.

In Nevada, a director is not liable to the corporation or its stockholders unless a breach of fiduciary duties involves “intentional misconduct, fraud or a knowing violation of the law.” ⁶

According to attorney David Bruno, this is a very high standard that has done extensive research and found that other states need to abide by this high standard. In contrast, the liability standard is simple negligence for the other 27 states that do not recognize the business judgment rule. This is a very low standard to meet, and when it is, personal liability will follow. ⁷

However, in Nevada, no director “is individually liable for a debt or liability of the corporation, unless the . . . director . . . acts as the alter ego of the corporation.”

Articles get automatic indemnification of officers: As of June 15, 2001, Nevada Revised Statutes (NRS) 78.037(1) allows officers to be automatically indemnified, whether it is stated in the articles or not!

If you have income tax nexus in another state, you may have to foreign qualify and pay taxes in that state.

Nevada is one of only two states that does not exchange information with the IRS. If your company has to register in another state, I want you to know that State will probably exchange information with the IRS. Here are the facts:

Internal Revenue Code (IRC) ß 6103(a) states that tax “[r]eturns and return information shall be confidential” and that no federal or State employee “shall disclose any return or return information obtained by him in any manner[.].” For purposes of this law, a “return” is “any tax or information return,” §6103(b)(1), and “return information” means:

[A] Taxpayer’s identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, over assessments, or tax payments, whether the taxpayer’s return was, is being or will be examined or subject to other investigation or processing, or any other data received by, recorded by, prepared by, furnished to, or collected by the Secretary concerning a return or the determination of the existence or possible existence of liability (or the amount thereof) of any person under this title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense[.]

§ 6103 (b)(2)(A).

Despite the confidentiality of this information:

Returns and return information . . . shall be open to inspection by, or disclosure to, any State agency, body, or commission, or its legal representative, which is charged under the laws of such State with responsibility for the administration of State tax laws for, and only to the extent necessary in, the administration of such laws[.]

ß 6103(d). In the above statute, “State” means any 50 states, Washington, D.C., Puerto Rico, the Virgin Islands, the Northern Mariana Islands, Guam, American Samoa, and the Canal Zone. § 6103(b)(5).

To put ß 6103 into action, 48 states, Washington, D.C., Guam, and American Samoa, have entered into “agreements of cooperation” with “the IRS on the exchange of information on taxpayers,” according to the CCH Standard Federal Tax Reporter, vol. 15 (2002), 36,894.576 at 64,490.

Two states which possess no such agreement with the IRS are Nevada and Texas. Id.

Nevada has low fees, especially taking into account all the benefits they offer.

Filing fees with the State of Nevada are reasonable ($425 for an LLC). Yes, Wyoming is only $100, but the extra $325 is the best asset protection investment you can obtain in the big picture.

Cases as low as $200 have been deemed acceptable capitalization levels in Nevada. However, in California, this amount was deemed too thinly capitalized, forcing the corporate veil to be pierced!

To find the Board of Directors liable, the shareholders must prove gross negligence on behalf of the Board of Directors. The test to prove gross negligence in Nevada is to pierce the corporate veil.
No other state has such a high test!

If you form an LLC, these provisions are critical. You must know whether the State of formation requires simply a legal purpose or a more detailed legal purpose. This is especially important when forming an LLC that mainly holds safe assets. Nevada is one of the states that only requires a legal purpose.

Currently, 14 states (California, Indiana, Iowa, Louisiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Pennsylvania, Rhode Island, Texas, and Virginia) require a business to form an LLC. Because of this, an LLC cannot be used to hold an asset to protect it from creditors unless that is deemed a business purpose in that State.

Each state defines the term “LEGAL PURPOSE” in its own way. This article reviews how each of the 14 states defines “business purpose.” Since an attempt to form an LLC in any of these states without such a purpose is invalid, and the application presumably would be rejected by the Secretary of State’s office, it is impossible to form an LLC without the requisite purpose.

And, of course, if an LLC is formed in one of the states indicated above and performs business in another state, that State’s business license statutes become applicable.

In the other 36 states, an LLC can be formed for “any lawful purpose,” which includes holding personal assets. Thus, a person could create a Nevada LLC to hold personal assets, and if no business is performed, the business license statutes will not come into play. This provides an extra layer of privacy not found in the 14 states named earlier.

The other significant change in Nevada law is abolishing joint and several liabilities. Joint and several liability means that should a judgment be entered against several defendants. They will each assume equal liability for the total amount of the judgment, regardless of their relative fault in causing the damages.

Nevada now requires the court to assign a percentage of faults to each defendant, from zero to one hundred, equaling 100 percent. Every defendant liable must pay a share of the total judgment, no more significant than their fault.

If your officers change throughout the year, the corporation is not required to update the Secretary of State every time a change is made. The corporation may update it (which requires a fee) or wait until its annual renewal is due.

In Nevada, one person can hold the offices of President, Secretary, Treasurer, and be the sole director. Many states require at least three (3) officers and directors. Thus, you don’t need to bring other people into your Nevada corporation if you don’t want to do so.

If an LLC is MANAGED BY MANAGERS, the owners are not required to be listed. This means you do not have to list the owners on the state records with an LLC managed by managers (in other states, that may not be the case). Nevada makes that possible if you are concerned about the public needing to determine who owns your LLC quickly.

NRS 86.263 Annual list: Filing requirements; fees; notice.

1. A limited-liability company shall, on or before the first day of the second month after the filing of its articles of organization with the Secretary of State, file with the Secretary of State, on a form furnished by him, a list that contains:

(a) The name of the limited liability company;

(b) The file number of the limited liability company, if known;

(c) The names and titles of all of its managers or, if there is no manager, all of its managing members; (this means when the LLC is managed by managers (the only way that makes sense), the list will only have to show the managers, not the members, who are the owners. You may not want the owners of your LLC listed in public records. This is very important!

(d) The mailing or street address, either residence or business, of each manager or managing member listed, following the name of the manager or managing member;

(e) The name and street address of the resident agent of the limited liability company; and

(f) The signature of a manager or managing member of the limited-liability company certifying that the list is correct, complete, and accurate.

Directors need not be Stockholders, and Officers and Directors of a Nevada corporation can be protected from personal liability for the corporation’s lawful acts.

For capital, services, personal property, or real estate, including leases and options. The directors may determine the value of these transactions, and their decision is final.

Nevada corporations may issue stock for capital, services, personal property, or real estate, including leases and options. The directors may determine the value of these transactions, and their decision is final.

Additional verification may be required on your U.S. address when you update your U.S. Amazon or Walmart account. Nevada is the only state where we can obtain one that will qualify if a utility bill is required.