Nevada Corporation And LLC Myths

There is much misinformation that is often spread regarding Nevada corporations and LLC’s. When deciding whether you should form a Nevada Corporation or LLC, you should understand precisely what a Nevada corporation or LLC can provide. With this in mind, you need to be aware of the myths and half-truths that are commonly (and incorrectly) taken as facts.

MYTH # 1:

Having a Nevada corporation will provide me with complete asset protection.

TRUTH: This simply is not true. While having a Nevada corporation can provide some asset protection benefits, the extent of these benefits depends on each unique situation. (You should consult with a lawyer to find out if a Nevada corporation is right for you.) Further, it is common that the principal shareholder(s) of a corporation will have to provide a personal guaranty for many obligations of the corporation, such as leases, credit accounts, etc… As such, when a personal guaranty is given, the Nevada corporation does not provide any asset protection benefit for the obligation that is guaranteed.

MYTH # 2:

I can avoid taxes in my home state by having a Nevada corporation

TRUTH: NO! If a Nevada corporation is conducting business in another state, and that state has a state income tax, then the corporation will have to pay that state’s income tax on the income earned in that state. Simply depositing any income into a Nevada bank account will not magically relieve you having to pay tax on the income.

MYTH # 3:

Bearer shares are a great way to provide privacy and bolster my asset protection.

TRUTH: RUN, don’t walk, away from anyone who recommends bearer shares. The rationale for bearer shares is that since the laws of the State of Nevada do not prohibit them, then they must be allowed. It is true that bearer shares are not illegal under the laws of the State of Nevada. However, just because it may not be illegal, does not mean it is a good practice. The proponents of the bearer share strategy will say that you can use bearer shares to provide asset protection because, whenever you may have a potential claim/creditor try to attach your assets, you can simply hand the shares of the corporation over to a friend or family member to hold the shares. That person is now the owner (i.e. bearer) of the shares, and thus you can tell the creditor that you have no interest in the company or stock for the creditor to attach. This strategy also assumes that the attorney trying to collect on the debt/claim is a moron. Any remotely competent attorney will ask if you ever owned any interest or stock in the corporation, and when did you transfer your interests. To which, you will either: 1) tell the attorney of the bearer share strategy, which creates all kinds of fraudulent transfer issues, as well as possible income and/or gift tax ramifications that you do not even expect; or 2) commit perjury to avoid telling the attorney who you transferred your shares to.

HINT: Any asset protection theory that relies on you committing perjury is not much of a strategy.

MYTH # 4:

Using a nominee director/officer is a good way to provide privacy and bolster my asset protection.

TRUTH: Why would you trust a total stranger to have control over your company and assets? The use of nominee directors and officers are usually recommended by self-proclaimed business and legal experts. You will be hard pressed to find a licensed attorney who recommends this strategy. While you may derive some privacy from having a nominee officer and director, this privacy will be lost once the nominee is served a subpoena and asked to provide the contact information for the owners of the company. The nominee will then be legally required to provide this information, and your privacy is gone. Further, the use of a nominee also offers no additional asset protection.

MYTH # 5:

Privacy = Asset Protection.

TRUTH: Just because something is slightly more difficult to find out does not mean you get any additional asset protection benefits.

MYTH # 6:

Nevada does not share information with the I.R.S., so I can keep my information private.

TRUTH: Just because Nevada does not share information with the I.R.S. does not mean that the I.R.S. will not have any information on the company. You will need to provide the I.R.S. with the name and social security number of someone involved with the company to obtain an EIN. Further, the company will be required to prepare tax returns (informational returns for S-corp’s and most LLC’s), on which the names and social security numbers of the owners or members will be provided. Thus, the I.R.S. will end up with this information anyway.

SUMMARY:

Please do not confuse the lack of an audit with being legal and proper. It is almost comical that there are numerous corporate formation companies that are dispensing legal advice when they are not attorneys. Why would anyone take advice on protecting their assets from someone who is not legally allowed or qualified to provide such advice, much less actually had to argue in support of any of their half-true positions before a judge?

The truth is that a Nevada corporation or LLC may be useful to some, but it is not the end answer for every small businessperson, especially those who do not operate in Nevada.

How to Form A Nevada Corporation – Online by Yourself

There are many advantages to forming a Nevada Corporation. The main reason is for protection. You want to protect your personal assets from coming under attack by some money-grubbing scoundrel that tries to sue your company.

Some of the major advantages of forming a Nevada Corporation Include:

• You can live anywhere in the world and don’t have to be a U.S. Citizen.

• You do not need an office in Nevada or a Nevada Bank account.

• Your Nevada Corporation is confidential and the information is not shared with any outside entity.

• Your financial ownership will be securely protected.

• There is no corporate income tax and no franchise tax in the State of Nevada.

The list goes on for advantages of operating your business with a Nevada Corporation. Let’s assume that you know that you need a Nevada Corporation. I am not deterring you from legal representation.

Now that I got that disclosure out-of-the-way, Here is the “Do it Yourself” option to forming a Nevada Corporation for the purpose of doing business.

A corporation will give your new or existing business the necessary image and protection.

Determine a name for your corporation.

You may have this great name picked out, but it is important that you do a name search first. Now keep in mind that you may have a corporate name but that isn’t necessarily the name that your business will run under. For example: ABC Corporation (A Nevada Corporation) may be the Corporate owner of a business operating under another name in another State. ABC Nevada Corporation operates a store located in Seattle called: Great Antiques.

Great Antiques would be the D.B.A. (Doing Business As) name of the ABC Corporation.

You need to go to the Nevada Secretary of State web page and do a Corporate Entity Name Search.

Once you have determined that the name you want is available, you can now decide how your name will be: A. ABC Corporation B. ABC Company C. ABC, Inc. We will go with ABC, Inc. for this purpose.

Assuming that you are not in Las Vegas, Reno or Carson City; it is not necessary that you come to Nevada to do this in person. If you want to tell your spouse that you need to make a very important business trip to Las Vegas to form your corporation, then by all means don’t let me stop you.

You can go to the Las Vegas Nevada Secretary of State office on Washington Street and do everything in person, but today’s technology allows you to do everything online. In a very short time you can be up and running.

Articles of Incorporation

For this Purpose we will choose: Domestic Articles of Incorporation- NRS78 as a For Profit Corporation. To begin the Online Process you need to go to this link:

https://nvsos.gov/esoscorpnet/pages/corp/Articles/NRS78WhatYouNeed.aspx

This link will give you a list of everything you need to begin and then it will give you the option to proceed.

Before you begin, you need to know:

1.Your entity name.

2.If you have Par Value or No Par Value shares. (Look up the difference). The more shares you pick the more expensive it will be. You can always add more shares in an amendment.

3. The name and address and acceptance of a Nevada Registered agent. If you live in Nevada you can serve as your own registered agent. If you live outside of Nevada you can hire a Registered agent for a little over a $100 per year. A Registered agent is a Nevada based entity or person that has a physical address in the State of Nevada. They will receive your correspondence.

There are many services that a Registered agent provides, and there is a list of approved registered agents on the Secretary of State webpage.

Before you file your Corporation, the Registered agent will need to sign off on a Registered agent acceptance form.

After you have made sure that you have everything, you can proceed from the original link by pressing the “Continue Link” and you can sign in to an existing account or create a new account.

1. Name of Corporation – They will ask you a series of questions and ask you if you need to upload any Specialty license documentation.

2. Registered Agent- You will fill in the name and select the address. You Upload the Registered agent Acceptance form.

3. Then you will go to the Authorized Stock section. (Like I said, you need to determine what will be the best option for you.)

4. You will fill in Names and Addresses of Board of Directors and Trustees.

5. The Next Section is for any corresponding attachments.

6. You can choose additional services and reviews.

7. Then the final check out and payment section.

8. Depending on the number of par or no par share you chose, and your decision to do a 24 hour expedite, Normal service, or 2- hour expedite, the final price will be determined. If you chose the 24-hour expedite for example you will be charged an additional $200 on top of your original filing fee.

Your original filing fee can be as low as $75. But once again this all depends on the number and types of shares you chose.

You can chose to either get an email confirmation or a mail confirmation. If you get an email confirmation, then you will receive the Articles of Incorporation attachment in your inbox in one or two days, along with your application and receipt.

There are additional steps you will need to do in order to be completely up and running as a corporation:

1. File a Nevada State Business License: $200 per year.

2. File a list of officers for your corporation. $150. After the above steps are completed, your Corporation will be considered to be ACTIVE in the State of Nevada. It will be up to you to determine your State and Local business requirements for your business. Your State will require you to have a Business License. Your city or County will require a separate business licenses. In both cases, your Nevada Corporation can be listed as the Owner of the Business.

Strategies That Could Fail In Nevada Corporations

Many businessmen are attracted to set up their businesses in Nevada for the benefit it offers that may at a glance be definite advantages. Business in Nevada can enjoy the following:

– Corporations in Nevada may sell, transfer, hold or purchase shares of its own stock

– Directors do not have to be Stockholders

– Directors of Corporations in Nevada has the final decision in determining transactions involving issuance stocks for capital, real estate, personal property and services

– Minimal Reporting and Disclosure Requirements

– No Franchise Tax

– No Information Sharing Agreement with the IRS

– No Personal Income Tax

– No Taxes on Corporate Shares

– Stockholders are not Public Record

– Stockholders, directors and officers do not have to be U.S. citizens or are they required holding meetings or living in Nevada

– There are Nominal Annual Fees in Nevada

– There is No State Corporation Income tax

– When the acts of the Corporation are lawful its officers and directors can be protected from personal liability.

These factors are some of the reasons why in the last few years, doing business in Nevada has attracted many businesses. The main reason is the savings of taxes when forming a Nevada corporation, whether it is a limited partnership or limited liability company. Many states do not like this especially when their citizens, still living in their states create a Nevada corporation because Nevada corporations, as we know, will file their tax through a Nevada bank and not the states where they reside.

But creating a Nevada Corporation, for the purpose of saving on taxes may eventually cause legal implications resulting to being taxed by their mother states just the same. It is in the interest of other states to review procedures to make sure that taxes due to them are being collected. This will result in having most of Nevada corporations not being able to take advantage of the tax benefits that attracted the businesses in the first place. Business people who thought that they are earning by the taxes saved in a Nevada corporation could be audited for improper procedures that have been done over the years. Note that it is very seldom that audits happen during the first year. Usually it will take two to three years before an audit is initiated. The Interest accumulated during those years can mean large in terms of back taxes and penalties. It does not mean therefore that because no audit has happened, the Nevada Corporation that was put up had been properly structured. The increase of companies that flocked to Nevada, especially when done through the profit motive alone in terms of taxes saved can suffer legal consequences.

It is always critical to do good homework when setting up businesses because of the consequences that could result. Policies that do not already work for a government is being changed or amended from time to time and that include its revenue-collecting effort.

Some strategies adopted by Nevada Corporations that could be penalized include

– Operating a Nevada corporation without a business license

– Fringe benefits that are entitled to employees go to independent contractors.

– Nevada Corporations that do not have an employee.

– Not being able to substantiate the establishing of business based in Nevada.

– Nevada Corporations that do not issue stocks

– Nevada Corporations that relies on bearer shares

– Nevada Corporations that relies on privacy as its asset protection strategy.

– Corporation that uses Nevada as an asset protection tool

Nevada Incorporation – Make Sure You Do It Right!

So you want to have Nevada incorporation? Well, it may be just what you want and need, or it could be a nightmare. It may very well be that Nevada incorporation is the right step for one company, and a misstep for the next. Besides the low cost for a Nevada incorporation, it provides owners with beneficial and unparalleled asset privacy. The filing fee for Nevada incorporation is $125, and is more affordable than most states. Another advantage of Nevada incorporation is privacy of ownership and the absence of a state income tax.

Most companies do NOT qualify to take advantage of Nevada incorporation’s benefits, so be sure that you check out the various requirements. Your resident corporation can maximize profits by taking advantage of the tax laws, and members of an LLC (owners) pay taxes on the income, yet have the advantage of limited liability as the shareholders of a corporation do. You can get every advantage used by big corporations at low cost which is one of the benefits of tax savings by a Nevada incorporation.

The state of Nevada has issued requirements for incorporation, primarily a residency test. In order to properly form a substantiated Nexus base in Nevada the following requirements should be met: (1) a compliant Nevada formed Corporation or LLC; (2) A Nevada office* (leased or owned) with physical and mailing address; (3) Nevada staff working in Nevada; (4) Nevada bank account; (5) Nevada phone number; (6) Nevada Business Registration; (7) Continuously maintain appropriate records, filings, and accountability. Anything less is a facade that requires home state registration and may negatively affect protection, privacy and tax advantages. A non-resident can have Nevada incorporation as long as he/she registers in their home state as well. This will generate additional filing fees; however, if you want total privacy, it might be worth it.

The benefits of Nevada incorporation are amazing! Numerous benefits are offered to existing and new businesses that incorporate in Nevada and they enjoy many benefits just not available anywhere else. For one, no taxation upon shares of stock held by non-residents and no inheritance tax upon non-resident holders. Pro-business Nevada, unlike almost every other state, has taken a stand! No Corporate Income Tax.
No Taxes on Corporate Shares

No Franchise Tax

No Personal income tax

No IRS Information Sharing Agreement

Nevada’s corporate statutes started with those of Delaware and then went even further, establishing a corporate entity that allows investors and owners of Nevada corporations to remain off the public record – an advantage that is unique throughout the world. Since these statutes took effect in 1991, the number of new incorporations in Nevada has exploded. The bullet-proof protection inherent in Nevada corporations, however, takes it to a new level, making it virtually impossible for creditors and litigants to get at your hard-earned assets. That just might be the main reason there were over 40,000 incorporations in Nevada last year alone. It looks like more and more business-savvy people are discovering the tremendous advantages that complete protection offers! Unlike most other states, there has never been a case in which the corporate veil was pierced in Nevada, except in the instance of fraudulent activity. This means your personal assets receive maximum protection when separated from business activities by a Nevada corporation. Nevada’s Supreme Court consistently stands strong on preserving this protection, even when a corporation fails to maintain basic corporate formalities (though we strongly recommend you do so).

Some other important benefits are a Nevada incorporation can be organized with very little capital, if desired. Many states require that a corporation have at least $1,000 in capital. One person can hold the offices of President, Secretary, Treasurer, and be the sole Director. Many states require at least 3 officers and/or directors. Thus, there is no need to bring other persons into a Nevada corporation if the owner does not desire it. A corporation can be formed by mail, fax, or phone and the person incorporating in Nevada never has to visit the state, even to conduct annual meetings. Meetings can be held anywhere in the world at the option of the director(s).

No reciprocity with the IRS. Nevada is the only state in the union that does not share information with the Internal Revenue Service. Many tax professionals also believe that this reduces your chances of an audit because less matching of tax return information means fewer chances of something standing out.

We trust that this information on forming a Nevada incorporation has been helpful. We cannot stress enough…get all of the facts and requirements for a Nevada incorporation, and contact a professional for advice in your particular situation. The purpose of this article is not to give you legal advice or recommendations, but to point out to you some of the requirements and caveats.

Bank of America No Longer Pursuing Deficiency Lawsuits in Nevada

Good news for those involved with the short sale process in Nevada! Bank of America has changed the templated wording of their standard short sale approval letter. Bank of America has finally deleted the verbiage referring to the bank’s right to ‘pursue a defiency judgement’ against a homeowner.

A deficiency judgment is when a bank sues the homeowner for the difference of the amount between the discounted amount the home sold for and the actual note amount.

For example: A house in Las Vegas, NV, has a mortgage of $200,000 but was sold via short sale for $150,000. In the case of a deficiency lawsuit, the bank would be able to sue the homeowner to collect the difference of between the mortgage value and discounted price, which would be ($200,000 – $150,000) $50,000. Talk about rubbing salt on a wound.

According to Bill Myers, Nevada’s top short sale Realtor and owner of The Myers Team with Century 21 MoneyWorld, “The reason to do a short sale is to minimize damage to your (the homeowners’) credit and avoid being sued by your bank.” Given the risk of these lawsuits by the banks, however, many homeowners have been reluctant to go ahead with this strategy for the fear of these judgements. Thusly, many of these home owners have had to suffer the credit damages associated with foreclosures.

While long overdue, it’s good that Bank of America has finally decided to do the right thing and join the other major banks in eliminating the deficiency lawsuit verbiage from its approval letters. Given the long list of distressed assets banks are holding, it really is about time that these larger banks start applying common sense logic to those trying to do the best they can in these tough situations.