Why Incorporate in Nevada

One of the best states to form an LLC or Corporation entity

Why Incorporate in Nevada

Why Incorporate in Nevada

    • Nevada is a prevalent choice as one of the best states to form an LLC or Corporation entity
    • A Nevada LLC is wildly popular for e-commerce sellers looking for an extra layer of asset protection to protect their home country entity. Product liability is a significant area of concern, and protecting the LLC manager and the entity veil is paramount.
    • There are several factors to consider when deciding if a Nevada LLC or Corporation is best for your situation.
    • As expected, there are several online blog posts, and their information seems to contradict each other, even those by attorneys and CPAs.
    • This will help to clear up some of those contradictions. Pay attention to the difference between a U.S. resident vs. a non-U.S. resident forming a Nevada LLC.
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Are you a U.S. Resident vs. Non-U.S. Resident?

    • If you are a U.S. resident and form an LLC in Nevada and live in another state, that changes the benefits you believe you are getting when you form a Nevada LLC. Does that mean you should form an LLC in your home state? Not necessarily.
    • It will help if you understand the advantages of formation and what happens when you foreign qualify to do business in your state (based upon some assumptions).
    • At this point, you will decide what advantages will be minimized or lost completely. Is it investing in two states?
    • In many cases, the answer may still be yes, although every website will say, “you should never pay two state fees. What a waste of money.”
    • I am sure, and as a business owner, you can find a better way to save $20-$50 per month (by being more productive, planning your day, less social media) that more than offsets the “two-state fees” concern.
    • A non-U.S. resident has the luxury to pick and choose which state would be best to launch their e-commerce business.
    • Although you are not required to have a U.S. entity to sell on Amazon.com, it is prevalent for many reasons, including separating liability from the foreign e-commerce business, obtaining product liability insurance, and investors more comfortable buying your U.S. brand from your U.S. company.
    • It is widespread for a U.K. resident to be selling on Amazon throughout the E.U. via a UK LTD, then expand to the U.S. and form a U.S. single-member LLC owned by the foreign U.K. limited company. There are many steps involved in the process, and knowing how to fill out the SS4 application for each entity is critical.
    • U.S. federal and state sales tax issues and concerns – more on that later – are still involved in each situation.

Nevada Advantages

Let’s address and dive deep into each of the Nevada advantages to see if it will benefit your situation, keeping in mind whether you are a U.S. or Non-U.S. resident.

Nevada State Taxes

Nevada does not have any state corporate income tax, but does have a commerce tax. The Commerce Tax is an annual tax passed by the Nevada Legislature during the 2015 Legislative Session. The tax is imposed on businesses with a Nevada gross revenue exceeding $4,000,000 in the taxable year. The Commerce Tax return is due 45 days following the end of the fiscal year (June 30).

Nevada Tax Proposal:

Nevada levies no state income tax on its residents. The state funds most of its budget with tax revenue from the gambling and hospitality industries, both highly susceptible to economic booms and busts. Sales tax did increase slightly in 2020. Effective January 1, 2020, the Clark County sales and use tax rate increased to 8.375%. This is an increase of 1/8 of 1 percent on the sale of all tangible personal property that is taxable.

Nevada Sales Tax:

The minimum combined 2020 sales tax rate for Clark County, Nevada, is 8.38%. This is the total of state and county sales tax rates. The Nevada state sales tax rate is currently 4.6%. Before the marketplace law in Nevada was enacted in October of 2019, if you formed a Nevada LLC, that would create physical nexus, and sales tax registration was required to file sales tax returns. The LLC would collect and remit sales tax on sales to Nevada residents.

Is a Sales Tax Permit Required when You form a Nevada LLC?

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Nevada considers Amazon a marketplace facilitator, a vendor, and vendors must register for the sales tax permit after marketplace nexus. As an Amazon seller, you, even with a Nevada LLC, are NOT considered a vendor and, therefore, are NOT required to register for a sales tax permit.

The exemption is if your Nevada LLC sells a product subject to sales tax on a non-marketplace, such as your website or Shopify. Once you cross the economic thresholds of $100K in sales or 200 transactions (after November 1, 2018), the LLC will need to collect and remit sales tax on those sales, and registration is required. Marketplace nexus also came into play after the 2018 U.S. Supreme Court case involving many states, who decided that it makes more sense to have the marketplace facilitator (i.e., Amazon, eBay, Etsy, Walmart) collect and remit the sales tax on behalf of sellers. Nevada passed marketplace nexus in October of 2019.

If you were an Amazon seller after October 2019, Amazon collects and remits sales tax on your behalf, and sales tax registration is NOT required. The Nevada Department of Revenue has summarized the sales tax situation for Amazon sellers by saying:

With a Nevada LLC or Corporation, the seller will not need to register for a sales tax license as long as they are only incorporated in Nevada and have no physical or economic nexus in the state. In the case of an out-of-state Amazon seller with inventory in Nevada, those sellers are considered to have a physical presence in the state prior to implementing the Marketplace Law.

New sellers do not need to worry about their inventory stored in the state because Amazon is now responsible for it since the Marketplace Law took effect. In conclusion, if a new out-of-state Marketplace seller chose Nevada as their state of incorporation and will not make any direct sales, they do not need to register for a sales tax license in the state. The exception for Amazon sellers: If you are selling on Amazon and your website or a Shopify store and cross economic nexus with either $100K or 200 transactions, registration for sales tax is required.

Go to this link to learn more about our sister brand’s sales tax registration services. Suppose you are behind on sales tax in Nevada or other states. In that case, we can help you determine your past liability and registration dates with our sales tax nexus analysis service.

The Nevada Department of Taxation has summarized the sales tax situation for Amazon sellers by saying:

“If you are selling on Amazon, you will not qualify for an exemption certificate in Nevada since Amazon will be the vendor. You don’t even meet a vendor’s definition, so you would not qualify for the exemption. You do not need to register for sales tax since Amazon is the one collecting the tax.”

The exception for Amazon sellers. If you are selling on Amazon and your website or a Shopify store and cross economic nexus with either $100K or 200 transactions, registration for sales tax is required.

Go to this link to learn more about our sister brand’s sales tax registration services, Sales Tax System. Suppose you are behind on sales tax in Nevada or other states. In that case, we can help you determine your past liability and registration dates with our sales tax nexus analysis service.

LLC Name | Amazon Storefront | Amazon Brand Name

No. Your LLC name could be your Amazon storefront name, and your product name could be a DBA name filed under the LLC. You will want to do a comprehensive trademark search for your LLC and product names (if different) and protect them accordingly.

Nevada Piercing the Entity Veil

When You Form A Separate Legal Entity, The #1 Advantage Is To Separate Your Personal And Business Assets. The Legal Entity You Form Will Provide A Barrier To Shield Your Personal Assets From Any Business Lawsuits.

If Your Business Is Sued, You May Lose All Your Business Assets; But Your Personal Assets Should Be Protected If Your Entity Is Properly Formed And Maintained.

Unfortunately, Should You Lose A Lawsuit And Not Have Insurance To Absorb The Initial Judgment (Which Is The Case For Most Who Form An LLC Or Corporation), Your Entity Veil Would Be Pierced, And The Lawsuit Would Attach To You, Personally. This Could Be Financially Devastating. Your Personal Finances Would Become Paralyzed. Let Us Explain
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If You Are Going To Apply For Any Personal Financing, A Car Loan, Refinancing Your Home, Purchasing A New Home, Being Asked, “Are You Currently Involved In Any Lawsuits,” Or “Do You Have Any Outstanding Judgments Against You” Will Immediately Cancel Your Financing Opportunity.

This Is What It Means To Be Financially Paralyzed, Which Is The Main Reason Why You Should Form A Separate Legal Entity Instead Of Operating Your Business As A Sole Proprietorship.

The Ability To Protect Your Entity Veil Is Essential, Especially If The Owners Include Partners Or Another Company.

Pierced Entity Veil

It’s Essential To Do Things Properly When You Incorporate. If The Corporation Is Sued And There Aren’t Enough Assets Or Insurance, The Plaintiff May Decide To Go Through The Corporation Veil, After You, Personally.

This Is Called “Piercing The Corporate Veil,” And The Consequences To You And Your Partners Can Be Devastating. This Also Means That It Was Proven That You Were Simply The “Alter Ego” To The Corporation Or LLC, Which Means One In The Same.

You Are Essentially A Sole Proprietorship Again, Financially Paralyzed, With A Lawsuit Against You, Personally!

How Do You Keep This From Happening? Your New Corporate Entity MUST:

Follow Corporate Formalities, Keeping Recorded Minutes And Resolutions;

Have Proper Capitalization, Which Is The Amount Of Money You Put Into The Corporation To Get It Started;

NOT Commingle Funds With Your Personal Account. Under No Circumstances Can You Use Corporate Money To Pay For Your Personal Expenses.

Entrepreneurs Don’t Understand That When You Form An LLC Or Corporation, You Have Liability Protection On Day 1 Of Your Formation. Still, To Maintain That Level Of Protection, You Must Operate Your Entity As A Separate Legal Entity, Where Most People Fail.

Nevada Corporate Veil Cases

It’s Extremely Difficult for Anyone to Pierce Your Nevada State Corporate Veil.

First, what exactly does “piercing the corporate veil” mean? When you form a corporation, whether in Nevada, California, Texas or wherever, you must follow certain corporate formalities.

Remember, a Nevada state 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 Nevada state 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 Nevada corporation for as little as $100.

Nevada has a certain attitude about piercing the corporate veil, so major corporations domicile in Nevada. Let’s explain.

The Nevada State Test - Trying to Pierce the Corporate Veil

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:

The corporation must be influenced and governed by the person asserted to be the alter ego. There must be such unity of interest and ownership that one is inseparable from the other.

The facts must be that adherence to a separate entity’s corporate fiction 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 incredible protection.

Nevada State Corporation – Case In Point

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 can 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.

The Nevada state corporation appears as an “Iron Fortress” to creditors.

The corporate veil has only been pierced two times in Nevada in the last 41 years. That was a case where the corporation was doing business in Nevada and had committed fraud against a Nevada resident.

Recent Piercing Cases

2014 Update: A Member of a Nevada LLC is Generally Not Liable for LLC’s Debts.

Even if the alter ego doctrine does apply to a Nevada LLCs, and that is still uncertain, there may be jurisdictional obstacles blocking your client’s attempt to sue the LLC members.

Because an LLC is a distinct entity, separate from its managers and members, “[p]ersonal jurisdiction over a limited liability company does not automatically extend to its members.”

2016 Update: Nevada’s Supreme Court Confirms That Limited Liability Companies Are Subject To The Alter-Ego Doctrine & Corporate Veil-Piercing Claims.

What does this mean?

Nevada Supreme Court wrote: “As recognized by courts across the country, LLCs provide the same sort of possibilities for abuse as corporations, and creditors of LLCs need the same ability to pierce the LLCs’ veil when such abuse exists.”

This is why our LLCs are complete with the right operating agreement and minutes, meetings, and resolutions that match a corporation. It is important to operate your LLC properly.

The decision’s holdings as to the personal liability of managers and members draw new attention to the importance of determining what acts, if any, a company will indemnify its managers or members for taking.

While this case itself may lead to a rise in alter-ego claims, the pleading standards for bringing such claims, including the need to allege acts constituting an abuse of the corporate form leading to injustice, remain a barrier to drive-by allegations of alter-ego.

In the end, you can’t commit fraud or acts constituting an abuse of the corporate form. You must operate the LLC as a separate legal entity, especially in the world of e-commerce that has a high degree of product risk, like misleading reviews, to get an edge over your competition.

There are plenty of $99 LLC online formation services, but you will have ZERO protection unless you have a complete formation.

The Circle of Liability

You already know there are tremendous risks of operating as a sole proprietorship, especially as we navigate a global pandemic. Legal action is likely to increase dramatically in 2021-22.

You also know you should form an LLC or corporation to separate your business and personal liability.

Most of you form an LLC or corporation. When your business is subject to a lawsuit that your insurance does not cover, you will likely have zero protection.

Why? Because you did not know about the circle of liability.

The circle of liability will explain the steps that, even with an LLC or corporation, you most likely will be financially paralyzed and unable to access new funding or, in some cases, your own money.

Logically, you already know a sole proprietorship has unlimited liability.

Before you say, “I am not planning to operate as a sole proprietorship,” it is important to understand how you may end up there and what those consequences could be in your life.

Back to major sole proprietorship issues.

Even if you have significant insurance as a sole proprietorship, you have problems. Today, if you are sued, even with insurance coverage, there is one area that will not be covered.

Let us explain.

A few years ago, when you filled out financial forms, they asked an important question: Do you have any judgments against you?  That meant you were sued and were unable to pay off a creditor.

If that were the case, if you were in the middle of getting a second mortgage on your house, the financial institutions would not lend you money because if you could not pay off the creditor, you probably will not pay them off!  They don’t want the risk.

The problem today is that the financial institutions ask a very different question. They ask, “Are you currently involved in a lawsuit?”

That simply means you could have been sued with any frivolous lawsuit, and now the financial institutions have realized that those who have been sued may lose and may not be able to pay a judgment against them! Therefore, right back to a high risk for the financial company.

Can you imagine needing money for a family health crisis, a son or daughter going to college, and you are unable to obtain the money because, as a sole proprietorship, you were sued personally (even if frivolous).

The result is, as a sole proprietorship, you can be financially paralyzed! Does this make sense?

The solution to avoid all of this is to incorporate or form an LLC.

BUT there is also a problem when you incorporate or form an LLC.

As you know, a corporation and LLC are separate legal entities from a sole proprietorship.

That is why they have limited liability.

But there are three things you must do differently than a sole proprietorship to gain this liability protection.

Those three things you must do as a corporation are:

  • Maintain minutes and resolutions,
  • Have proper Capitalization and,
  • Avoid commingling funds.

If you don’t do these things properly and the corporation (or LLC) is sued, AND there is not enough insurance or assets in the corporation to settle the lawsuit, AND if the suing party realized you have personal assets outside of this entity, they might attempt to pierce the corporate veil and go after you personally.

That means they are attempting to set aside the corporation and say you did not operate it properly.

If that is the case, then you are right back to being viewed as a sole proprietorship with UNLIMITED liability and being financially paralyzed!

At this point, you might be wondering, “Can I buy insurance for this piercing of the corporate veil?” You can buy E & O, business liability, but there is
NO insurance on protecting the corporate veil.

Let me ask you this; if the insurance company could make money on it, would they sell it to you? Of course, but they don’t. What does that tell you?

Now, the Best Solution is to Incorporate in Nevada.

Nevada is very pro-business, and Nevada’s corporate veil has only been pierced two times in the last 41 years.

Now I will tell you there have been many cases where a Nevada corporation did not operate properly, meaning they did not do all of their formalities, thinly capitalized the company, and even commingled funds.

Still, Nevada protected the corporate veil because the owners did NOT commit outright fraud!

Nevada will protect you, the business owner. Does this make sense?

“That sounds great, but I don't live in Nevada; how does that work for me?”

● First, you will incorporate in Nevada. ● Then foreign qualify to do business in your home state. ● You will open your bank account and office in your home state and do business there.

If you are sued, that will occur in your home state.
At this point, you are probably wondering how much extra will this investment be?
Another advantage is that Nevada is a better pivot point if you plan to move in the next year or two
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Incorporate in One State and Redomicile or Move to Another State.

What is Involved?
Some strategies will recommend incorporating in your home state; and, if you move, simply move your LLC or corporation to the state you are moving. That is possible. The key is to evaluate the steps involved in that process, which are not that simple.

We realize each state is different within their process. Not all states allow domestication or moving from one state to another.

Here are the three main ways to move a company from one state to the next:

1. Some states allow to move an entity from one state to another, called domestication, or,

2. Some states you have to merge into a home state entity, which requires forming a new entity in the home state to merge into, or

3. Some states require you to withdraw from the state that the entity is foreign qualified and open a brand new entity in your new state.

Each state also has statutory requirements to follow.

Most do only figure out one part: how to move the entity from one state to their state of residence.

They don’t concern themselves with the state they are leaving from, and often that leads to the entity going revoked in the home state, which is not good.

Once revoked, the name is available; but, more importantly, you are personally liable for any legal action in that state.

Steps to Domestication

The LLC domestication process is not uniform. Each state that permits domestication has its requirements, and the laws of both the original formation state and the law of the new state must be satisfied. Here are the steps.

Steps to Domestication

The LLC domestication process is not uniform. Each state that permits domestication has its requirements, and the laws of both the original formation state and the law of the new state must be satisfied. Here are the steps.

  • Draft Plan of Conversion

    The LLC attorney must draft a plan of conversion.

  • Approve the Plan of Conversion

    The LLC members' plan of conversion must be approved as required by the LLC acts of both states.

  • Draft Documents for Original State

    Each state requires a domestication document to carry out the plan of conversion

  • Draft Documents for New State

    As with the original state, a certificate of conversion or articles of domestication must be prepared under the plan of conversion.

  • File Conversion Documents with Both States.

    Once the domestication documents are prepared, they must be filed with both states

  • Pay Required Fees

    Each state has fees that must be paid in connection with the domestication.

  • Draft Remaining Formation Documents for Domesticated LLC.

    The domestication paperwork only moves the LLC to the new state.

16 Points Why Incorporate in Nevada?

Why incorporate Nevada when it’s easier, cheaper, and simpler to incorporate in your home state? Here are 16 reasons to consider incorporating Nevada when you have a growing business and want an extra layer of protection and complexity for your assets

1. Nevada Protects the Corporate Veil
2. Nevada Protects the Board of Directors and Officers
3. Nevada Provides Indemnification of Officers Automatically when Articles are Filed!
5. Nevada does NOT Exchange Information with the IRS.
6. Nevada has Low Fees
7. A Nevada Corporation or LLC may be Thinly Capitalized!
8. Nevada Offers the Best Protection of Board of Directors from Shareholder Lawsuits!
9. In Nevada, you must only have a Legal Purpose to Form a Corporation or LLC!
10. In Nevada, there are NO joint and Several Liabilities!
11. Nevada Only Requires the List of Officers to be Updated Annually!
12. In Nevada, One Person Can Hold ALL the Corporate Positions!
13. Nevada does NOT Require the Members to be Listed in State Records
14. Nevada does NOT Require Stockholders, Directors, and Officers to be U.S. Citizens or Live or Hold Meetings in Nevada!
15. Nevada corporations may purchase, hold, sell or transfer shares of its own stock
16. Nevada may issue the stock for services

E-Commerce Sellers Completing a Tax Interview with Your New Nevada LLC

When you form a Nevada LLC, make sure you know how to complete the tax interview
on the marketplace where you plan to sell, or your account will NOT be activated. We
provide these steps when you register and have tips directly from Amazon, for example,
so you don’t have to figure out later what TOS areas you violated or what is POA
(appeal) to Amazon.

Our team is familiar with most platforms and sales tax compliance that makes NCP and
our sister brand, Sales Tax System, the #1 resource for serious e-commerce sellers
looking to build and protect their profits in the U.S.

Ready to form a Nevada LLC?

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