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!
Are the Four Greatest Benefits You Get
When You Incorporate in Nevada?
- It's extremely difficult for anyone
to pierce your Corporate Veil, and
- Your officers and directiors can be
- You don't have to worry about Joint
and Several Liability, and
- You can take advantage of Jurisdictional
What's all that mean? Let's examine
the benefits one at a time.
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:
- 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; and
- 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
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!
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.
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!
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
- 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
Here's what we suggest you do
when you form a Nevada corporation or LLC then register to do business
in your home state:
- Select NCP as your registered agent
- File your articles on an expedited basis
- Select a premier corporate record book
- File your corporation's list of officers
- Obtain a certificate of good standing
- Get your Nevada state business license
- File for your federal tax ID number
- Check your chosen entity name in your
- Complete the paperwork to register your
entity as a foreign corporation doing business in your home
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!