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Why Form an LLC in Nevada
(or Nevada Corporation)?

If you really want to protect your business and assets you shoud strongly consider having your entity domiciled in Nevada. Separately, you will more than likely need to foreign registeter (qualify) in the state you are operating your business. Becareful, because most businesses incorporate in Nevada for the wrong reasons: to save money on state income taxes and to maintain privacy. Discover the four right reasons below!

What Are the Four Greatest Benefits You Get When You Incorporate in Nevada?

  1. It's extremely difficult for anyone to pierce your Corporate Veil, and

  2. Your officers and directiors can be indemnified, and

  3. You don't have to worry about Joint and Several Liability, and

  4. You can take advantage of Jurisdictional Strategies.

What's all that mean? Let's examine the benefits one at a time.


1. It's Extremely Difficult for Anyone to Pierce Your Corporate Veil.

First, what exactly does "piercing the corporate veil" mean? When you form a corporation, whether it's in Nevada, California, Texas or wherever, you must follow certain corporate formalities. Remember, a corporation can do everything you can do except act or think, so it does those things through your board of directors, officers and shareholders. If your corporation does not keep accurate records of meetings by minutes, and if the corporation commingles funds, it makes it easier for someone to pierce your corporate veil if the corporation is involved in a lawsuit.

Low capitalization is another reason why corporate veils get pierced. In some states, like California, we recommend that you capitalize your corporation with at least $1,000. If you don't, it's easier for someone to prove that you are simply the alter ego of the corporation (one and the same as the corporation), and then pierce your corporate veil!

How does Nevada feel about this? Nevada is called a "thin capital state," meaning you can form a corporation in Nevada for as little as $100. Also, Nevada has a certain attitude about piercing the corporate veil, which is why major corporations domicile in Nevada. Let's explain.


First, in Nevada, anyone trying to sue you must pass a three-prong test-they must prove all three parts to pierce your corporate veil:

  1. The corporation must be influenced and governed by the person asserted to be the alter ego;

  2. There must be such unity of interest and ownership that one is inseparable from the other; and

  3. The facts must be such that adherence to the corporate fiction of a separate entity would, under the circumstances, sanction fraud or promote injustice.

The burden of proof for all three "general requirements" is on the plaintiff who is seeking to pierce the veil, and a failure to prove any of the three will result in your veil not being pierced! Essentially, Nevada says that unless they can prove fraud, your corporate veil will not be pierced! That is awesome protection!

The landmark case that proves this point is the case of Roland vs. Lepire (1983). We recommend that you keep accurate corporate records to protect your corporate veil, and make sure you have adequate capitalization as well. In Roland, the corporation had a negative net worth at the time of the trial so it was clear it was inadequately capitalized. On top of that, the corporation never held formal directors or shareholders meetings, never started or kept a corporate minute book, never paid dividends, and didn't pay salaries to the officers or directors.

On the other hand, the corporation managed to secure a corporate checking account, as well as a general contractor's license and a framing contractor's license, "both in its name." What happened? The court concluded that, "Although the evidence does show that the corporation was undercapitalized and that there was little existence separate and apart from [the two key shareholders]…evidence was insufficient to support a finding that appellants were the alter ego of the…corporation." The Nevada Supreme Court has made clear that unless the plaintiff acting against you is able to meet the burden of proving that "the financial setup of your corporation is only a sham and caused an injustice," your veil is unlikely to be pierced.

Nevada appears as an IRON FORTRESS to creditors. In fact, the corporate veil has only been pierced two times in Nevada in the last 33 years! And that was a case where the corporation was actually doing business in Nevada and had committed fraud against a Nevada resident.

Again-The Corporate Veil Has Been Pierced ONLY TWO TIMES in the Last 33 Years in Nevada!


Listen to the "Circle of Liablity™" and Discover the Real Benefit of Incorporating in Nevada!


2. Your Officers and Directors Can Be Indemnified.

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

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

Contained in the Nevada Revised Statues (78.037), the law in part reads as follows:

"The articles of incorporation may also contain: A provision eliminating or limiting the personal liability of a director or officer to the corporation or its shareholders for damages for breach of fiduciary duty as a director or officer, but such provision must not remove or limit the liability of a director or officer for: Acts or omissions which involve intentional misconduct, fraud or a knowing violation of law."

Nevada Corporation Code allows for the indemnification of all officers, directors, employees, stockholders, or agents of a corporation for all actions that they take on behalf of the corporation that they had reasonable cause to believe was legal. This indemnification can include any and all civil, criminal and administrative action. (See NRS 78.751.) These two laws can provide you with complete protection for the officers and directors of your Nevada Corporation, as long as they act prudently in their roles.


3. You Don't Have to Worry About Joint and Several Liability

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

Nevada now requires the court to assign a percentage of fault to each defendant, from zero to one hundred with the total equal to 100 percent. Every defendant found liable is required to pay a share of the total judgment no greater than his/her fault. So if you've done nothing wrong, chances are good you won't be held responsible!


4. You Can Take Advantage of Jurisdictional Strategies

What about Nevada vs. Delaware?

The main rights in Delaware law benefit shareholders of public corporations. This attracts large, public companies that trade on various exchanges across the country to provide the best protection to their shareholders. Delaware's corporate law, with regards to corporate takeovers is the strongest anywhere in the U.S.

More recently however, Nevada's corporate law has surpassed Delaware's in its efforts to ensure the protection of the rights of small corporations. Delaware for example, has adopted a statute that allows the corporation to limit the liability of a director for monetary damages. However, it has far to go to be compared to similar statutes adopted by Nevada. For example, the following are acts for which officers and directors would be protected under Nevada law, but exposed under Delaware Statues:

  • Acts or omissions not in good faith.

  • Acts by officers are not exempt from monetary damages under Delaware law.

  • Breach of a director's duty of loyalty.

  • Transactions involving undisclosed personal benefit to the officer or director.

  • Acts or omissions that occurred prior to the date that the statute which provides for indemnification of directors, was passed and approved.

One requirement that Delaware has is that an officer must reasonably believe that he or she is performing his or her duties in a manner that is in the best interests of the corporation. This requirement is not present in Nevada.


If You Are a Foreign Corporation Doing Business in
Your Home State, What State Laws Take Precedence?

Let's say you formed a Nevada corporation for your new California restaurant. You would have to register it as a foreign corporation doing business in California (because you are physically doing business there). Why would you do that as opposed to just forming a California corporation? You now know that Nevada is the hardest state in which to pierce the corporate veil, so it's unlikely that anyone will go after your board of directors personally. This is why Tony Robbins, Citibank, Home Shopping Network and many other companies are based in Nevada.

If your California restaurant gets sued, the lawsuit would occur in California courts. However, if someone tried to pierce the corporate veil, the lawsuit may occur in Nevada. The plaintiff now faces additional expenses to travel to Nevada to try the case.

When you operate your Nevada Corporation doing business in California, you will enter into several agreements and contracts. Those contracts and agreements would mostly fall under the laws of California. But you may actually have a choice!

There is something called "choice of law jurisdiction." What does that mean? It means you can enter into a contract and decide that it falls under the laws of Nevada (state of domicile) not California (state of doing business). If you were challenged, you'd have the laws of Nevada in your favor, which is a great discouragement to those thinking about lawsuits!
Recently, NCP entered into an agreement with a large tax firm. Rather than having disputes handled pursuant to the laws of New York (the home state of this company), we asked for and received a modification that let us use Nevada law.

You'll also find something called "choice of forum," which means you may choose where you want your case to be heard-which in most cases would be Nevada! Someone in California, bound by a choice of forum in Nevada, might have to travel to Nevada for their lawsuit to occur. The travel alone might curb this person's enthusiasm to sue your company!

By the way, these powerful advantages of forming a Nevada entity: piercing of the corporate veil, choice of law and forum jurisdiction in Nevada, applies to LLCs as well!


What is the Investment Difference Between Forming an Entity in my Home State vs. Forming a Nevada Entity and Registering to do Business in my Home State?

Now that you are convinced that there are powerful advantages to forming an entity in Nevada first and then registering as a foreign corporation in your home state, let's cover what your extra investment might be to get all this great protection. Keep in mind that you may not even have to take these things into consideration if you have a business operation in Nevada.

Here's what we suggest you do when you form a Nevada corporation or LLC then register to do business in your home state:

  1. Select NCP as your registered agent

  2. File your articles on an expedited basis

  3. Select a premier corporate record book

  4. File your corporation's list of officers

  5. Obtain a certificate of good standing

  6. Get your Nevada state business license

  7. File for your federal tax ID number

  8. Check your chosen entity name in your home state

  9. Complete the paperwork to register your entity as a foreign corporation doing business in your home state

The only additional investment you'll have to make is when you pay your home state foreign registration fees, typically $100 to $200 more than if you registered your entity in your home state!

Now you see why small and large companies are rushing to be domiciled in Nevada!


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in Nevada?
Call NCP Today at


1-800-351-5111

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Advanced Research:

Why Nevada?

Why Nevada?- Discover the invaluable benefits you get when you incorporate in Nevada.

16 Reasons to Incorporate in Nevada?- This is the major reason why you need to incorporate in Nevada.

Piercing the Corporate Veil - The #1 reason for you to incorporate in Nevada.

Does Nevada Share Information with the IRS? -This sought-after secret is finally revealed!

Nevada VS. Delaware -Learn the accuracy of the claims made in "Nevada vs. Delaware" reported on many web sites in our industry.

Strategies that Don't Work in
Nevada
- Discover what our competitors DO NOT want you to KNOW!

The Advantage of Incorporating in Nevada - Discover advantages of incorporating in Nevada when your entity registers as a foreign corporation in California.

California had the Highest Percentage of Cases in which Courts had Pierced the Corporate Veil! - Discover why it is especially important for anyone operating in California to have the strong corporate veil Nevada offers!

California's Approach to Piercing the Corporate Veil to Foreign Corporations - Learn how California aggressively attacks corporate privacy.

California's Approach to Choice of Law in the Absence of an Effective Choice by the Parties - Learn what jurisdiction is all about.

The Approach of New York, Wisconsin, and Texas in Applying Their Law to Foreign Corporations (as Compared to California) Three states with a different approach.

Do you Need an Office and Bank Account in Nevada?
- Unless your employees and business are located in Nevada, most likely, the answer is NO!

Snake Oil Strategies Proposed by Others That just Simply Don't Work - The most important article on this site!



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