| Debunking the myths of Nevada
| |
| | level and in the state where the
|
| corporations and analysis of pros and
| |
| | shareholder lives (this also applies to
|
| cons of forming a corporation.
| |
| | other pass-through entities such as
|
| After you have decided that incorporating
| |
| | LLCs).
|
| is beneficial for your business, some
| |
| | Thus, as indicated in the paragraph
|
| people consider incorporating in states
| |
| | above, you will not be able to legally
|
| outside of their home state. Most
| |
| | gain the Nevada tax benefits if you form
|
| notably, Nevada has been promoted by many
| |
| | a Nevada pass-through entity such as a
|
| "incorporating services" as having
| |
| | S-corporation or LLC. However, a Nevada
|
| incredible benefits as opposed to the
| |
| | C-corporation can avoid the state taxes
|
| client's home state. Other states such as
| |
| | (remember that a C-corporation is
|
| Delaware and more recently Wyoming have
| |
| | subjected to double taxation at the
|
| also received consideration for
| |
| | federal level). The way a Nevada
|
| incorporating. In some cases, depending
| |
| | C-corporation operating in California
|
| on the facts of your business, there are
| |
| | could be structured to minimize its taxes
|
| some benefits in forming an
| |
| | is as follows: As a C-corporation, your
|
| out-of-the-home-state corporation in
| |
| | company will be stuck with double
|
| states such as Nevada. However, in the
| |
| | taxation at the federal level. Rather
|
| majority of cases the benefits of forming
| |
| | than withdrawing the profits from the
|
| a Nevada corporation is simply a myth and
| |
| | corporation, keeping the profits within
|
| will often be more expensive and
| |
| | the Nevada C-corporation will allow it to
|
| troublesome than filing in the company's
| |
| | grow free of any state taxes.
|
| home state.
| |
| | Limited Liability Protection: Whether
|
| Law of the Land: Foreign Entities
| |
| | your company has greater limited
|
| This may be a surprise to many,
| |
| | liability protection in Nevada versus
|
| typically, corporations will be governed
| |
| | other states is debatable. Many believe
|
| under California law despite being
| |
| | that Nevada state precedence makes
|
| incorporated in Nevada. Let's assume you
| |
| | piercing the corporate veil much more
|
| do file a Nevada, yet you operate all of
| |
| | difficult. Whether this is true will
|
| your business in California. Under this
| |
| | depend on the facts of your case and how
|
| scenario, you are deemed to be a "pseudo
| |
| | good your lawyer is, since the test for
|
| foreign" corporation. If the corporation
| |
| | piercing the corporate veil in both
|
| is a pseudo foreign corporation,
| |
| | states are substantially similar (both
|
| California law in many areas will
| |
| | California and Nevada require a showing
|
| supersede the law of the state where the
| |
| | that a substantial injustice or
|
| company was incorporated in. (See
| |
| | perpetuation of a fraud occurred).
|
| California Corporation Code §2115(b)).
| |
| | However, in regards to directors and
|
| Therefore, for companies entirely based
| |
| | officer liability, Nevada law provides
|
| in California and doing business in
| |
| | that directors and officers are not
|
| California, practically all of the
| |
| | liable for any damages resulting from a
|
| claimed benefits of incorporating in
| |
| | breach of fiduciary duty unless the
|
| Nevada are out the window. It should be
| |
| | breach involved intentional misconduct,
|
| noted that if a Nevada corporation
| |
| | fraud, or a knowing violation of the law.
|
| operating in California fails to qualify
| |
| | (See Nevada Rev. Stat. §78.138(7)).
|
| as foreign corporation, it may be subject
| |
| | Jurisdiction: This can be good or bad for
|
| to a number of sanctions. (See California
| |
| | your company. If you are operating in
|
| Corporation Code §§2203, 2258, 2259).
| |
| | California but are a Nevada corporation,
|
| Nevada v. California
| |
| | the question is which state law takes
|
| The benefits typically touted by a Nevada
| |
| | precedence? As indicated above, in most
|
| corporation are the following: lower
| |
| | circumstances, your corporation will be
|
| costs; tax savings; and greater privacy.
| |
| | deemed a pseudo foreign corporation and
|
| But is any of it true? Below we will
| |
| | thus be subjected to California's laws.
|
| discuss some of these issues.
| |
| | So if you are sued, the lawsuit would
|
| Expense: Contrary to what many people
| |
| | likely occur in the California. However,
|
| believe, it is more expensive to file in
| |
| | if the plaintiff attempts to pierce the
|
| Nevada than in California. Here are some
| |
| | corporate veil, the lawsuit may occur in
|
| of the additional expenses: the initial
| |
| | Nevada, thus the plaintiff would have to
|
| filing fee is more; the Statement of
| |
| | face additional expenses to travel to
|
| Information is much more; you will be
| |
| | Nevada to try the case. Likewise, you as
|
| required to file a Statement and
| |
| | the defendant would be required to go to
|
| Designation of Foreign Corporation in
| |
| | Nevada as well. However, if you enter
|
| California; and you will be required to
| |
| | into contracts with others, your contract
|
| hire a Nevada Agent for Service of
| |
| | can include "choice of law jurisdiction"
|
| Process each year. For large clients, the
| |
| | provisions, which require that the
|
| additional cost (of approximately $500
| |
| | contract falls under the laws of Nevada.
|
| more) is not a big consideration, but for
| |
| | Similarly, "choice of forum" provisions
|
| smaller businesses every dollar counts.
| |
| | in your contracts will require your case
|
| Taxes: The tax ramifications is usually
| |
| | to be heard in Nevada.
|
| one of the most important reasons for
| |
| | Privacy: Nevada is generally more
|
| deciding whether to incorporate and
| |
| | restrictive than most states in sharing
|
| where. Nevada's secretary of state
| |
| | information about its corporations with
|
| website says that Nevada has none of the
| |
| | other states and the government. As such,
|
| following: (1) corporate income tax; (2)
| |
| | many celebrities and high profile
|
| taxes on corporate shares; (3) franchise
| |
| | individuals seeking anonymity often end
|
| tax; and (4) no personal income tax. So
| |
| | up incorporating in Nevada. However, both
|
| how does this actually play out? The
| |
| | California and Nevada do not require its
|
| bottom line is if you are doing business
| |
| | stockholders to be listed in public
|
| anywhere other than Nevada, you will
| |
| | records. Further, Nevada does not share
|
| still be required to pay taxes in the
| |
| | information with the IRS unlike
|
| state where you are conducting business.
| |
| | California. But if a Nevada corporation
|
| So if you are operating and generating
| |
| | conducts business as a pseudo foreign
|
| business in Nevada, this can be a huge
| |
| | corporation in California, it would be
|
| benefit, otherwise if you are generating
| |
| | required to disclose the information to
|
| money in California, you are required to
| |
| | the IRS.
|
| pay California's taxes. Furthermore, any
| |
| | This article is not intended as a
|
| income earned by a Nevada business and
| |
| | substitute for legal or tax advice. The
|
| paid out to a resident of another state
| |
| | specific facts that apply to your matter
|
| will be subjected to the taxation of that
| |
| | may make the outcome different than would
|
| state. Therefore, the income passed on to
| |
| | be anticipated by you. You should consult
|
| the shareholders of an S-Corporation in
| |
| | with an attorney familiar with the issues
|
| Nevada will be taxed at both the federal
| |
| | and the laws.
|
