Why incorporate in Nevada when it’s easier, cheaper, and simpler to incorporate in your home state? Here are 16 reasons to consider incorporating in Nevada when you have a growing business, and you want an extra layer of protection and complexity for your assets.
1. Nevada Protects the Corporate Veil
As a sole proprietor, you are responsible for all of your business debts and liabilities, making you vulnerable to lawsuits that could wipe out your personal savings and assets. When you apply for a loan for a house, car, or credit cards, 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, you, as a corporate owner, are not personally liable for the corporation’s debts or liabilities, and now a lawsuit against your corporation will leave your personal assets protected.
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:
- You cannot co-mingle personal and business funds. For example, you cannot write a business check to pay for personal items.
- You must 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 that you are not treating the corporation as a separate legal entity. Even if you own a one-person corporation and you want to take a business trip for two weeks, 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.
- 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 for that reason. 1
If a judge should decide that you did not do the above three items properly, and they conclude your corporation is not a real 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 right 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
When you incorporate in Nevada, you have the best protection against piercing the corporate veil THAN IN ANY OTHER STATE. (Delaware is also very good, 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 two times 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, and it will be in California, so you don’t need to incorporate in Nevada. But what your attorney may not explain is 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, it says, “Courts traditionally look to the laws of the State of incorporation in resolving questions regarding a corporation’s internal affairs.
2. Nevada Protects the Board of Directors and Officers
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 the personal liability of officers and directors 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 and comprehensive in the country.
One last difference concerning what is known as “Inside Liability” needs to reviewed. A vast majority of states have Director protection statutes, which allow for article provisions that eliminate director liability for certain breaches of fiduciary duty to the corporation. In other words, because of the state statute, directors automatically receive protection just by filing the articles.
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 Articles of Incorporation in Nevada, this protection is automatic. In contrast, in other states, you have to write specific language into the Articles to have this protection. If you file the Articles on your own 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, actions taken solely in the capacity of an officer are not protected by a director protection statute. 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 the decisions of a corporation’s officers or directors if those decisions are within their authority, have a rational basis, and are made in good faith, even if they turn out to be mistakes in judgment.
Also, in Delaware, under no circumstance is a director 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
This is a very high standard, according to attorney David Bruno, who has done extensive research and found that other states do not abide by this high standard. In contrast, for the other 27 states that do not recognize the business judgment rule, the standard of liability is simple negligence. 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.” 8
3. Nevada Provides Indemnification of Officers Automatically when Articles are Filed!
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!
4. Nevada Has No State Corporate or Franchise Taxes (if under $4M in sales to Nevada residents). If under $4M, you don’t even need to file a Nevada Commerce Tax Return anymore.
If you have income tax nexus in another state, you may have to foreign qualify and pay taxes in that state .9
5. Nevada does NOT Exchange Information with the IRS.
Nevada is one of only two states that does not exchange information with the IRS. If your company has to register in another state, keep in mind 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 concerning 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, the term “State” means any of the 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.
6. Nevada has Low Fees (in relation to the benefits included).
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 in the big picture, the extra $295 is the best asset protection investment you can obtain.
7. A Nevada Corporation or LLC may be Thinly Capitalized!
Cases as low as $200 have been deemed acceptable capitalization levels in Nevada. However, in states such as California, this amount was deemed too thinly capitalized and forced the corporate veil to be pierced!
8. Nevada Offers the Best Protection of Board of Directors from Shareholder Lawsuits!
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!
9. In Nevada, you must only have a Legal Purpose to Form a Corporation or LLC!
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 you form an LLC that will mainly hold 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 purpose in order 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 of these states defines the term “LEGAL PURPOSE” in its own way. This article reviews how each of the 14 states defines the term “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 not possible to form an LLC in these states 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.
10. In Nevada, there are NO joint and Several Liabilities!
The other significant change in Nevada law is the abolishment of joint and several liabilities. Joint and several liability means that should a judgment be entered against several defendants, and 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 faults 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 or her fault.
11. Nevada Only Requires the List of Officers to be Updated Annually!
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 the corporation’s annual renewal is due.
12. In Nevada, One Person Can Hold ALL the Corporate Positions!
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.
13. Nevada does NOT Require the Members to be Listed in State Records
If an LLC is MANAGED BY MANAGERS, the owners are not required to be listed. This means that 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). If you are concerned about the public not quickly determining who owns your LLC, Nevada, makes that possible.
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.
14. Nevada does NOT Require Stockholders, Directors, and Officers to be U.S. Citizens or Live or Hold Meetings in Nevada!
Directors need not be Stockholders, and Officers and Directors of a Nevada corporation can be protected from personal liability for lawful acts of the corporation.
15. Nevada corporations may purchase, hold, sell or transfer shares of its own stock for capital, services, personal property, or real estate, including leases and options. The directors may determine the value of any of these transactions, and their decision is final
16. Nevada may issue stock for services
Nevada corporations may issue stock for capital, services, personal property, or real estate, including leases and options. The directors may determine the value of any of these transactions, and their decision is final.
What does it Cost to Incorporate in Nevada?
The cost for a Nevada LLC filing with the Nevada Secretary of State is $425. That includes $75 for the LLC filing fee, $200 for the initial Nevada State Business License and $150 for the initial list of Managers/members. The annual renewal fee is due by the end of the renewal month. If you formed a Nevada LLC in April of 2020, the renewal would be due by April 2021. The annual fee would be $350. If you don’t renew by the last day of the Nevada LLC formation month, your LLC will go into default status and be subject to a total of $175 in late fees ($100 late fee for the Nevada State Business License and $75 late fee for the Nevada Annual List of Managers/members).
The cost for a Nevada Corporation filing with the Nevada Secretary of State is $725. This assumes you have a stock amount equal to or less than $75,000 of the total value. See the Nevada Secretary of State’s Corporate Fee Schedule at this link. That includes $75 for the corporate filing fee, $500 for the initial Nevada State Business License, and $150 for the initial list of Officers/Directors. The annual renewal fee is due by the end of the renewal month. If you formed a Nevada corporation in April of 2020, the renewal would be due by April 2021. The annual fee would be $650. If you don’t renew by the last day of the Nevada corporate formation month, your corporation will go into default status and be subject to a total of $175 in late fees ($100 late fee for the Nevada State Business License and $75 late fee for the Nevada Annual List of Officers/Directors).
Those are the filing cost for a Nevada Corporation and Nevada LLC. You will also need a Nevada registered agent, an EIN through the IRS, and a corporate or LLC record book complete with minutes and resolutions. The Nevada LLC needs to make sure the operating agreement matches with the number of members and taxation type filed. For example, a single-member LLC disregarded has a separate operating agreement vs. a single-member LLC taxed as an S corporation. Overall, it usually makes sense to use an LLC package for a complete formation to make sure you are properly protected, and all the steps are completed. You will save money with our NCP Nevada LLC and Corporate packages. Learn more here.
The proper IRS election must be filed after formation, which may include the 2553 S election for either the LLC or corporation or form 8832 to be filed for the Nevada LLC if you want it to be taxed as an S corporation also. NCP includes these IRS filings in their packages.
You may also need a Nevada resale certificate and sales tax permit if you are selling products subject to Nevada sales tax. NCP is also able to help you with these filings and recommends a sales tax firm to help with the Nevada sales tax remittance requirements. Learn more here, Nevada sales tax registrations.
Do you need a Nevada Address Service?
It depends upon where your business has physical nexus. Your business will need a separate business address in Nevada if your business is located in Nevada. If you have employees in another state and no physical nexus in Nevada, your Nevada LLC will likely foreign qualify to do business in the states where you have nexus. If you are based outside the U.S. with no U.S. physical address, a Nevada virtual address service will make sense for your Nevada LLC.
NCP’s Process and Evaluation for Filling Your Nevada LLC or Corporation
If you are considering an LLC, which type of LLC is best?
- How should the Nevada LLC be managed? By managers or by members?
- Who should be a manager vs. a member?
- How does this impact opening a bank account?
- Should an owner also be a manager?
- Does the owner want their name in state records? Is there a benefit?
What address do you use for the manager or member of an LLC? Should it be your home address, a P.O. box, out of State? Does it matter?
If you are considering a Corporation, which corporation is best?
- Are you planning to retain profits?
- Are you planning to raise money through investors?
- Do you want the profits or losses to flow through to the owners?
- Are your officers in or outside the State of Nevada, and what impact could that have if outside the State of Nevada?
- If an S corporation, do any owners violate the S corporation shareholder rules?
- Are you planning on a reasonable payroll?
- Do you have investors, and do they qualify to invest in an S corp?
What about your Nevada name selection?
- Is the name available? Was it a revoked company? Any risk to that? Did you do a trademark search?
- Do you also need a DBA name?
What to Add to Nevada’s States One Page Articles?
What additional language should be added to the articles to help give others more clarity of the level of liability protection that Nevada offers?
NCP prepares additional documents to be added to the State’s simple one-page articles to add specific language on the indemnification of the officers and directors, so it is clearly in state records attached to the State’s filed articles.
What does it cost to fix errors in your articles after they are filed?
$175 per amendment on the articles and $150 for the initial list after 30 days. This does not include the LLC or corporate resolutions required to meet Nevada statutory requirements.
Finally, Nevada has updated its process and all of its forms as of July 2019.
Is a Corporate or LLC Record Book Necessary?
Yes, if you want a complete formation. If you want to protect your personal assets from your new business, you want to make sure the Nevada LLC or Nevada Corporation is simply not the “alter-ego” of yourself.
That means if you don’t operate the LLC or Corporation as a separate legal entity, which refers to following corporate formalities (which apply for LLCs), have proper capitalization and avoid commingling of funds when someone files a lawsuit against your entity. The courts may set it aside and allow the lawsuit to attach to you personally. This is called piercing the entity veil.
Granted, Nevada is more stringent than most states, but you still want to make sure you are protected. The IRS looks at similar rules to determine if you were operating a real business or a hobby.
An LLC record book should include the following documents:
- Copy of the filed articles
- Acceptance of managers or members of the LLCs
- Correct LLC operating agreement with schedule A to match the number of members and taxation type
- Minutes of the first meeting
- Minutes of the organizational meeting
- Resolutions to document LLC activity
- LLC membership certificate and ledger
- A copy of any additional tax elections with the IRS, 2553 or 8832
We recommend every document in your record book has instructions and a video overview on how to complete and fill them out. This is your Nevada LLC responsibility.
A Nevada Corporate Record Book should include the following:
- Copy of filed articles
- Acceptance of initial director
- Appointment and acceptance of additional directors
- Appointment and acceptance of the officers
- Minutes of the organization meeting
- Minutes of the first meeting
- Bylaws and acceptance
- Resolutions to document corporate activity
- Stock certificates and stock ledger
- A copy of any additional tax elections with the IRS, 2553 or 8832
Nevada Registered Agent Requirement:
A Nevada registered agent is a responsible third-party who is located in the same state in which the business entity was established and who is designated to receive service of process notices, correspondence from the Secretary of State, and other official government notifications, usually tax forms and notice of lawsuits, on behalf of the corporation or LLC.
Why Do I Need a Nevada Registered Agent?
If you do not have a physical location in the State in which your business is registered, in most states, you must select a registered agent to accept documents on your behalf. The State in which your business is registered needs to know it has a contact person for your business during business hours; accordingly, P.O. boxes are not acceptable addresses for registered agents.
What Does a Nevada Registered Agent Do?
A registered agent accepts tax and legal documents on behalf of your business, making sure you don’t miss important information regarding tax payments, lawsuits, or judgments involving your business; a registered agent may or may not have a role in the operation of the business itself.
Can You Be Your Own Nevada Registered Agent?
While it is usually legally possible to serve as your own registered agent (assuming you live in Nevada), some advise businesses to designate a third-party to perform this vital role.
By having someone else responsible for the receipt of tax and legal documents, you can have the peace of mind that someone will be available to claim such valuable information, which means you can leave the office freely, go on vacation, etc., without having to worry about complying with the State’s Registered Agent requirement..
What Are Other Benefits of Having an Independent Nevada Registered Agent?
Besides not worrying about missing relevant documents, having a registered agent also means that it is less likely that you will have to accept potentially embarrassing legal and tax documents in front of clients. Another advantage is that, as your registered agent address will remain the same, you can easily change your business location without necessarily having to file more paperwork to change your address with the State for every move.
Filing of the Nevada Articles:
Here all the key elements to evaluate BEFORE you fill out the “simple” Nevada SOS form.
- How will your Nevada LLC be managed, managed by managers or by members? What are the key differences?
- Who should be a manager and member of your LLC?
- Whose name should appear in state records?
- Is the Nevada LLC or Nevada Corporate name available?
- Who should be a corporate director or officer?
- Should you attach additional articles to the State’s simple form?
- Who should be the registered agent?
- What address should you use as a manager of the Nevada LLC or an officer of the Nevada corporation?
Remember, each amendment or change to your articles is $175 in Nevada (to do that on your own).
There are other steps involved in your Nevada LLC or Nevada Corporation formation. Those other necessary steps including applying for an EIN with the IRS, completing the corporate operating agreement, and issuing membership certificates.
EIN with the IRS
You have 17 questions, each with an opportunity for mistakes. Any idea of what you must deal with to fix EIN mistakes with the IRS? Here are a few examples:
- Applying online for the EIN with the wrong title for the LLC manager will cause an error and require you to fax the application to the IRS, then 5 to 10 business days for a resolution after your fax the corrected SS4 application.
- Does the tax return type selected on the application match the LLC taxation type?
- Selecting the correct year-end tax date is essential.
- It is knowing if your company has employees or not and when payroll will start.
- Are additional forms required, 2553 or 8832?
Completing the Operating Agreement and issuing Membership Certificates:
- What are the tax consequences to the members upon the formation of the Nevada LLC?
- Who should sign the operating agreement and complete schedule A?
- Are membership certificates necessary?
- Does the local bank require a copy of your operating agreement with all the signers present when you open the account?
Overall, anyone can fill out the Nevada Secretary of State’s one-page set of articles, but forming a complete LLC or Corporation has many more steps involved to meet the Nevada statutory requirements and provide the steps to make sure you have the liability protection an LLC or corporation offers.
NCP has been filing complete Nevada corporations and Nevada LLCs for over 23 years and has a comprehensive process and a lot of support after you form your new LLC or corporation.
One of the most critical areas is to make sure you make a complete transition from a sole proprietorship (assuming you were operating as such at first) to a separate legal company. We provide you with a checklist and video overview to complete this process.
We also provide you with checklists to make sure your record book is completed, including how to pay yourself, an entity checklist, and a fast start checklist to make sure you complete all your steps, especially the most important ones after we form your LLC or Corporation for you.
If you need support with a complete formation and want to focus on what you do best to grow your business, NCP is ready to form your Nevada LLC or Corporation for you and help you through the process.
1 Remme v. Herzog, 35 Cal. Rptr. 586, 222 Cal. App. 2d 863 (1964)($
157,000 in capitalization
2 Hagglund et al., supra, at 9.
3 See Nevada Revised Statutes 78.138(7)
4 See Delaware Gen. Corp. Law § 102(b)(7); Cal. Corps. Code § 204(a)(10)
5 See Arnold v. Society for Savings Bancorp, Inc., 650 A.2d 1270 1288 (Del. 1994)
6 NRS 78.138 (7).
7 See Theriot v. Bourg, 691 So.2d 213 (La. App.), writ denied, 696 So.2d 1008 (La. 1997) (a series of bad business decisions led to personal liability for five directors in the amount of $5,798,441.
8 NRS 78.747(1)
9 To take advantage of the tax laws of Nevada, your company must have an employee in Nevada; if income tax nexus in other states, pay state income tax in that State.