NEW NEVADA CORPORATIONS & LLC'S ^©

In earlier decades the state of Delaware was considered to be the best state to form corporations in. For several reasons the state of Nevada surpassed Delaware and has become the leading corporate and LLC haven of the U.S. This does not mean that you can automatically and easily gain the benefits of a Nevada entity when your business operation is in another state. To the contrary, your home state business must jump thru extra hoops to benefit from a Nevada corporation or LLC. If you are able to handle the extra requirements, the added benefits of a Nevada entity are:

1. Better Limited Liability - An extra level of protection afforded by the Nevada corporate and LLC veil (better limited liability provisions in Nevada). Nevada state law and court precedence make the corporate veil all but impossible to pierce, except for criminal fraud by corporate or LLC officers. (See the Nevada case, Roland vs. Lepire, 1983) In some cases your non-Nevada business should register its Nevada corporation or LLC in your home state in addition to the Nevada registration (see footnote* below for details), but even so, Nevada's tough laws prevail on matters of limited liability of corporate officers, directors and shareholders.
   
   
2. Choice of Governing Law - Choice of governing law means that on most contracts and transactions you can specify Nevada as the choice of state law to govern the contract or transaction. This places an extra burden of expense on a potential litigant since they must travel to Nevada to sue your company. It also forces the lawsuit to be heard under laws that are much more protective of corporate and LLC officers than other states.
   
   
3. Additional Privacy - Nevada has no requirement or even a procedure to register or list stockholders in public records, thus assuring their privacy. Remember that shareholders control the company and receive its profits. Furthermore, the state of Nevada does not share information with the IRS (per state law). Using a special NAFEP service referred to as the Nevada Business Package gives your entity a Nevada address and phone number, with private mail forwarding to you. This drastically increases privacy for the corporate/LLC owner.
   
   
4. Possible State Income Tax Savings - You may eliminate state income tax, for C corporations only, and only in a few special situations. For more info read the last topic on this web page, entitled Saving Corporate Taxes in Nevada.

*If your primary purpose for your Nevada entity is achieving privacy, then a home state filing is not necessary. But, if your primary purpose for forming a Nevada entity is for added lawsuit protection (limited liability), then you should consider filing a second registration for your Nevada entity in your home state. Of course a home state or second filing will significantly increase the total cost of your annual filing fees. But, otherwise you may have no personal immunity from business related lawsuits which may be filed in your home state. If you are a licensed professional, you must file a second registration of your Nevada entity in your home state. To ensure partnership tax classification for LLCs, you may need the second filing in your home state. See your tax accountant regarding this question.

Nevada Business Package
Simply forming your Nevada entity with the Nevada Secretary of State is not enough to achieve the protections afforded by Nevada laws and courts, and is not enough to afford the privacy you may be looking for. For either new or existing Nevada entities, NAFEP offers a comprehensive package of services to assure that you receive the privacy and special lawsuit protections which Nevada laws and a Nevada mailing address offers. Without some specific legal, physical and financial connections to Nevada, in a lawsuit a Nevada court could (correctly) hold that your entity is only an out of state entity, and therefore not entitled to Nevada protections. Without a Nevada mailing address, with a confidential forwarding service, you cannot achieve the privacy you are looking for. NAFEP provides an annual "Nevada Business Package" to give the mailing address privacy and your needed connections to and presence in Nevada.

For only $395 annually (lowest price in Nevada), this package will provide the following: Physical and mailing address, phone number, phone answering, bank account, mail forwarding, Nevada registered agent, and (optional) Nevada state business license. Order the Nevada Business Package by clicking the link below:

Saving Corporate Taxes In Nevada
There is a virtual myth surrounding the use of Nevada corporations as publicized by many of the Nevada corporation promoters (the state of Nevada has dozens, if not hundreds, of private businesses that promote the formation of Nevada corporations). It is true that there is no personal or corporate income or capital gains tax in Nevada. For businesses operating in that state and generating income or gains for Nevada residents this is a real bonus. Many promoters tout an "upstreaming" strategy for moving some of your non-Nevada business profits into a Nevada corporation. However any income or gains earned by a Nevada business and paid to a resident of another state will technically and legally be subject to the taxation of that other state. If you form a Nevada S corporation all the income must pass through to the shareholders each year, and that income will then be taxed at both the federal level and in the state where the shareholder lives. The same thing applies to an LLC when it has a partnership tax classification (the usual choice).

Using a Nevada entity would make it easy to hide the income from your local state's tax authorities, by merely not reporting the income to your state. In other words, if your Nevada entity issues to you either a 1099 (dividend tax statement) or a K-1 (income tax statement), you could simply neglect mailing a copy to your local state, neglect to report it on your state tax return, and it is unlikely that anyone would be the wiser. The State of Nevada has no income tax authorities to receive a copy of the 1099s and K-1s, so no one in Nevada would know about the dividends or income. Only the IRS would. But, this failure to report the income to your local state is illegal. And, it is possible that your state obtains 1099 and K-1 information from the IRS. If your state finds out about the unreported income, they would be able to charge penalty and interest on any unpaid amounts.

So the promoters' state income tax avoidance schemes with Nevada corporations cannot legally work for S corporations and LLCs, and one of those will be the entity of choice for most small businesses. You may be able to get the strategy to work legally to a certain degree if you form a C corporation in Nevada (but there are several legal hurdles). However, if you are not presently using a C corporation in your home state, you should not form a Nevada C corporation to use the upstreaming strategy. Doing so will cause the profits to be subject to double taxation at the federal level. This will cost you more than you gain.

The one legal and workable aspect of upstreaming is this: If you presently have a C corporation in your home state, and you do not plan to change it to S status, you already have double taxation and are stuck with that problem. If you formed a C corporation in Nevada and upstreamed profits to it you still have double taxation at the federal level, but the profits could be held in Nevada to grow free of state taxes for a period of time. Several years of that growth could have significant added value. Eventually when the profits are repatriated to your home state they will be taxed there, though the tax free growth still could have considerable benefit. In addition, it may be possible that you will retire to Nevada and take your profits then, with no income taxes owed to the state.

Generally, the upstreaming tax strategy that Nevada promoters publicize works as follows: You form a Nevada corporation in addition to the business entity that you presently have. You then arrange for the Nevada corporation to perform some service for your business, such as: (1) Running your field sales operation and employing the sales people from the Nevada corporation, (2) accounts receivable management, (3) research and development labor and other costs, etc. The Nevada corporation bills your home state business for these services and builds in a hefty profit. The charge from the Nevada corporation is deductible by your business. The normal cost of these services are deductible to your business anyway, but the profit that is tacked on by the Nevada corporation causes additional sums to be deductible to your business. The hefty profits which are moved to Nevada are still subject to federal taxes, but there is no Nevada state tax on them. For this upstreaming to work legally in your home state, that is in order to pass a tax audit in your home state, there are two important things that must be done: (1) There must be a Nevada based employee(s) who does the work or supervises it in a Nevada location (the supervisory work cannot be done in your home state) and (2) the corporation must be formed as a C type.