Nevada is one of the best places in the United States to incorporate because its asset protection and privacy laws are among the strongest. Nevada is the only state to offer charging order protection to corporate shares. We’ll cover more about this later. Additionally, Nevada has minimal reporting requirements.
What You Need to Become Incorporated
To be incorporated with completed asset protection, we provide clients with the following:
- All initial organizational filings with the Nevada Secretary of State (state filing fees are in addition)
- One full year of Nevada resident agent service
- Preparation of Bylaws, Operating Agreement or Limited Partnership Agreement
- Initial Meeting Minutes
- Issuance of Stock, Membership Interests or Limited Partnership Interests
- Corporate Minutes
- Corporate Name Check
- Instructions and forms for obtaining a Federal Employer Identification Number (EIN)
- And as a gift our $49 book, Bulletproof your Corporation, Limited Liability Company and Limited Partnership
Garrett Sutton’s Corporate Direct believes in setting clients up for success for the life of their business. We are dedicated to helping our clients set up and maintain proper asset protection from the beginning. Clients get a free consultation with an Incorporation Specialist who understands intricacies of the legal system across America’s 50 states. From that we provide a personalized asset protection structure. Clients get what they need from the start, at an affordable price, with no hidden fees or unmet legal requirements. You can also visit us in our Nevada offices.
Many discount organizations provide only some of the required documents and charge fees for additional required documents resulting in surprise sticker-shock. Big online DIY corporation companies or unspecialized lawyers will allow clients to sign up for legal entities that do not offer the best legal protection or tax advantages. We’ve seen real estate owners set up as C Corporations resulting in them paying double in taxes!
You get all of this for $695 each (plus applicable filing fees). If you form three or more entities with us, the price per entity is $595 each (plus applicable filing fees).
Starting Your Business in Nevada
When you are starting a business there are two important questions to ask:
- 1. Should I incorporate or start out as a sole proprietor?
- 2. If I do incorporate, which state should I use?
Should I Incorporate, or Start as a Sole Proprietor
The answer to the first question is painfully obvious – as in it will be painful if you ignore the obvious. There is no asset protection with a sole proprietorship. One claim against your business and all your personal assets (i.e. home and bank accounts) are at risk. The fact that you may not have a lot of assets right now doesn’t really help you. A judgment can be renewed for years to come. The day you do acquire assets you can loose them because they can be reached by the judgment creditor. Another downside of the sole proprietorship is that they are audited by the IRS as a five times greater rate than other forms of doing business.
A corporation or an LLC (collectively an “entity”) will protect your personal assets and reduce your audit risk. If your business gets sued, the assets inside the entity can be reached (i.e. computers and equipment). Importantly, the assets outside the entity, your personal assets, are not exposed to the claim. Your personal assets are protected.
So you will always want to form an entity for protection. Please do not fall victim to the advisor who says you aren’t making enough money to incorporate. The issue is not your level of reward but your risk, which begins the day you start your business. (This chart can help you choose a business entity type.)
Which state for formation will you choose?
Please know that you can form an entity in whatever state appeals to you. For example, if you are doing business in California you can incorporate in California. As many of you know, California’s laws are weak on asset protection. Thankfully, you have the choice of incorporating in Nevada for the superior laws and then qualifying to do business in California. (Qualifying is the process of getting permission for a Nevada entity to do business in California – or any other state. It is always granted.) This means you will pay the annual fees in both California and Nevada. But by paying the additional Nevada fee you are buying an excellent form of insurance – superior asset protection.
Many business owners will choose an S corporation for their business startup. The S corporation offers a lot of advantages – flow through taxation, and, as of this writing, the ability to minimize payroll taxes. The only problem with the corporation (be it a flow through S corporation or a double tax C corporation) is that it doesn’t have the asset protecting benefit of the charging order as is found in an LLC.
Nevada’s Unique Charging Order Protection
Nevada is the only state in the Union to extend charging order protection to corporation shares. The charging order means that instead of a shareholder’s creditor being able to force a sale of the corporation’s assets, they must rather wait for the distributions as in an LLC. The charging order is a huge deterrent to frivolous litigation. This asset protection benefit applies to Nevada corporations with between 2 and 75 shareholders. And it is the reason many business owners are starting out by incorporating in Nevada.
Thus, for many, the two questions we posed at the start can be answered in one line: Yes, I will incorporate in Nevada.
Video: Why Nevada and Wyoming are Great States for Incorporating
What Else Makes Nevada a Great State for Incorporation?
Corporate Shareholder Privacy
Nevada does not share shareholder information with the IRS. Nominee officers and directors can be provided to further enhance privacy.
Nevada’s asset protection laws are strong and the corporate veil is not easily pierced.
Directors, officers and shareholders do not have to live in or hold meetings in Nevada. Telephone meetings are permitted. One person may hold all director and officer positions, and directors/officers do not have to be stockholders. Nevada law also allows for various classes of stock and debt, securities and voting restrictions, rights and preferences to be included in the articles and bylaws. These and other favorable features of Nevada corporate law provide for great corporate flexibility and ease of maintenance.
No minimum capital contribution is required to incorporate. A total of 75 million shares may be authorized without the payment of additional fees. Shares may be issued not only for money or assets invested, but also for personal services, leases and options granted, and personal property. In addition, a Nevada company may purchase, sell, hold or transfer shares of its own stock.
Updates to Nevada Law
The Nevada legislature made some significant changes to Nevada’s Corporation Code which became effective July 1, 2007. The biggest changes were that bearer shares are outlawed, an ownership disclosure procedure has been instituted and that corporations have stronger asset protection. More detail on each of these topics are below.
Bearer Shares Outlawed
Bearer shares are stock certificates which, instead of listing the owner by name, list the owner only as “The Bearer.” The supposed advantage of this was to maintain privacy of ownership. The Bearer was whoever held the certificate, so shares could be transferred from one person to the next without notice to anyone or recordation anywhere.
I have never really liked the whole notion of bearer shares. If someone comes to me with the bearer certificate, how do I know if the certificate wasn’t stolen or forged? The idea of simply handing a certificate from one person to the next may sound nice and easy (and a bit crafty) but such a transfer can create all sorts of tax problems. If you hand a certificate representing a million dollar business over to your friend you’ve made a significant gift, for which gift taxes are due. And when by prearrangement he hands the certificate back to you there’s another taxable event. Worse yet, what if your ‘friend’ wouldn’t give you the certificate back?
The big reason bearer shares were outlawed has to do with fraud. Less than ethical corporate promoters would sell their less than ethical corporate clients on the idea that by simply handing the bearer certificate over to a friend they could deny a judgment creditor (one with a court awarded judgment) access to the business or other asset. Of course, such a transfer is a fraudulent conveyance, meaning that a court could overturn the transfer if anyone ever found out about it. The problem was that it could be very difficult to find out about it. As a result, bearer shares enabled a certain class of people to commit fraud. The Nevada Legislature was right in outlawing bearer shares.
New Ownership Disclosure Procedures
The use of Nevada corporations and other entities to commit fraud is also the reason for this next big change. It is unfortunate that privacy of entity ownership is now somewhat compromised, but when people continually abuse the system something will usually give.
Apparently the federal and law enforcement authorities pushing for these changes played the terrorist card — that insanely bad people were using the privacy of Nevada entities to ultimately greatly harm us. While it is my opinion that this red hot card gets played a little too often these days, there can be no denying that domestic bad guys, your average American scam artist, used Nevada privacy for nefarious purposes.
But the new law for corporations, LLC’s, LP’s, business trusts and the like is not as bad as you may expect. Here is the rule for corporations:
- 1. In addition to any records required to be kept at the registered office pursuant to NRS 78.105, a corporation that is not a publicly traded corporation shall maintain at its registered office or principal place of business in this State:
- a. A current list of its owners of record; or
- b. A statement indicating where such a list is maintained.
- 2. The corporation shall:
- a. Provide the Secretary of State with the name and contact information of the custodian of the list described in subsection 1. The information required pursuant to this paragraph shall be kept confidential by the Secretary of State.
- b. Provide written notice to the Secretary of State within 10 days after any change in the information contained in the list described in subsection 1.
- 3. Upon the request of any law enforcement agency in the course of a criminal investigation, the Secretary of State may require a corporation to:
- a. Submit to the Secretary of State, within 3 business days, a copy of the list required to be maintained pursuant to subsection 1; or
- b. Answer any interrogatory submitted by the Secretary of State that will assist in the criminal investigation.
- 4. If a corporation fails to comply with any requirement pursuant to subsection 3, the Secretary of State may take any action necessary, including, without limitation, the suspension or revocation of the corporate charter.
- 5. The Secretary of State shall not reinstate or revive a charter that was revoked or suspended pursuant to subsection 4 unless:
- a. The corporation complies with the requirements of subsection 3; or
- b. The law enforcement agency conducting the investigation advises the Secretary of State to reinstate or revive the corporate charter.
- 6. The Secretary of State may adopt regulations to administer the provisions of this section.
It is important to note that Nevada is not asking for the owners of the entity up front. The requirement is that the registered agent either keeps a list of the owners or the name of a contact person who has a list of the owners. The Secretary of State will request the ownership list only when a law enforcement agency needs it for a criminal investigation. Not for a civil case mind you, but only for a criminal case.
What this means is that if your business and asset protection plans are on the up and up, your privacy will be protected. Or, to put it another way, if you are engaged in fraud and other crimes, our firm will be happy to comply with these new rules. You may even want to take your bad business somewhere else to begin with. But for the good guys, you will still maintain your
Two points are worthy of further note. First, for limited partnerships the only owners the new legislation aims for are the general partners. While the generals do indeed control a limited partnership, frequently they only own 2% or less of the entity, and are usually just a management corporation or LLC. The limited partners will own 98% of the limited partnership and, except for management, are the economic beneficiaries of the entity.
Whether the new law intentionally just wanted information only on the general partners or will be corrected to include the limited partners’ identities remains to be seen. But for now, people very concerned about privacy may want to use Nevada limited partnerships.
The second point has to do with Wyoming. The corporate law of Wyoming does not have such an ownership disclosure procedure. Yet.
Apparently the federal authorities are working to get similar legislation approved in other states, including Wyoming. We will keep you informed of such developments. Until then, once again, those very concerned about privacy may want to use Wyoming entities.
3. Stronger Asset Protection for Nevada Corporation Shares
One of the strongest asset protection laws on the books is the charging order. This law holds that a judgment creditor of a member of an LLC or a partner of a limited partnership can’t acquire those interests directly and use that control to force a sale of the assets. Instead, they only obtain the rights of an assignee of the membership or partnership interest, meaning they are only entitled to distributions from the entity. They can’t vote to sell the assets to satisfy their claim. They can’t even vote to increase distributions. They are stuck waiting for future distributions, which may or may not come. The charging order is a very effective deterrent to frivolous litigation, especially in Nevada and Wyoming LLC’s and LP’s where the charging order is the exclusive remedy.
Up until now, the charging order had never applied to shares of corporate stock. So, for example, if John got in a car wreck and his insurance did not cover him, the victim could proceed against all of his assets. If John owes 75% of a profitable corporation the victim could get control of the shares and vote to sell the business to satisfy the claim. This certainly is not fair to Jane, the 25% owner of the business, who worked hard to build it up only to see it sold out from under
With Nevada’s new law the charging order now applies to shares of corporations. This is an excellent development.
There are several important rules to point out. The charging order protection only applies to corporations that have more than one and fewer than 75 shareholders. If you own 100% of a profitable corporation you may well want to consider issuing a nominal amount of shares to a relative or friend in order to gain the better protection. As well, the new law does not apply to subsidiaries of publically traded companies or to professional corporations.
The charging order protection for corporate shares does not apply to any litigation filed before July 1, 2007, and it does not supersede any private agreement between a stockholder and a creditor. This new law puts Nevada at the forefront of asset protection states. While Wyoming will most probably follow suit, until they do Nevada is the state in which to incorporate. Even though Nevada’s initial and annual filing fees are somewhat higher than Wyoming’s fees, the better protection is well worth the extra cost.
Garrett Sutton is an attorney, Rich Dad’s Advisor and the best selling author of numerous books including “Start Your Own Corporation,” “Run Your Own Corporation” and “How to Use Limited Liability Companies and Limited Partnerships.” Garrett has over thirty years’ experience in helping business owners and investors protect their assets and limit their liability. To set up your entity, call 1-800-600-1760 or contact us.