Nevada Corp Basics

General Real Estate Investing
1

There has been much speculation on why or if to use a Nevada corp for your personal assets or privacy or business. I will try to sum it for you. but before we begin, I would like to say that you should always consult with a qualified actuary like a CPA, or attorney, financial Planner, etc … before you begin your endeavors. Every situation is unique and you should have the knowledge to equip yourself to make the right decision.

here we go:)

  1. NV is a pro-business state, with minimal reporting requirements and no taxes.

  2. NV has no reciprocity agreements with the IRS. Thery are the only state that has consistently refused to exchange confidential info regarding its corporate citizens with the IRS.

  3. No minimum start up capital required. Stocks can be issued in exchange for services.

  4. Only (1) person required to serve all the officer and director positions. For complete privacy, you may elect a nominee to serve this position.

  5. Low cost, the fees for setting up and maintaing a NV corp are nominal depending on whether or not you elect to have it formed in 24 hrs. Annual renewal of $125, California charges $900+ to keep the corp in good standing.

  6. No requirement that any officer or director live in NV.

  7. NV corps are uniquely positioned to be used in Estate planning, allowing your estate to be passed onto your heirs without going through probate.

  8. No personal income tax

  9. No franchise tax

  10. No tax on corporate shares

  11. there is never a a state requirement to disclose the owners of any shares of stock.

  12. NV is the only state that allows for “bearer” shares to be issued, or even better, there is no requirement to issue any shares at all!

  13. The state law says that the only reason a corporation can be “pierced” or set aside is because of “Outright Fraud.” You have to commit a crime before the courts will consider piercing the corporation.

  14. The registerd agent is only required to to keep a copy of the Articles of Incorporation, corporate bylaws, and location of the stock ledger.

  15. No requirement to keep a stock ledger, only a statement identifying where it is located (hint-for maximum asset protection, keep it offshore, outside the jurisdiction of the Federal Gov. or subpoena)

  16. in 1993, NV legislature eliminated the right of any creditor to access the corporate stock ledger, assuming they could find it in the first place!

As you can see, Nevada is very commited to protecting your privacy and your assets. Afterall, the state was run by the mob until recently.

in order to protect yourself and your assets completely, a NV corp is a fantastic addition to your business structure (existing or nonexisting) or for personal financial privacy. In some instances, you may want to protect your liquid assets by moving them offshore, but we will save that topic for later. It is really employed by those who have accumulated a large amount of liquid assets.

hope these points have cleared up some of the confusion.

2

I know I have been through this before, see LLC vs. Corp topic, but I must ask what the benefit to a corporation as opposed to an LLC is…

Are there really any?

Many of the benefits you listed would apply to an LLC as well (privacy, low fees), others are corporate specific as an LLC would not have stock.

Both would require good bookkeeping/accounting. A corporation requires at least an annual board meeting. LLC does not. And a corporation is required to have “the board” vote on company decisions and document that correct? While an LLC simply acts more like a pass through entity, no votes required, right? Less paperwork?

Any pieces to the puzzle that I am not clueing in on…

My initial thought was a NV Corp with managing agreements with the separate LLCs which would own individual properties. Or I could have the LLCs be subsidiaries of the larger corporation.

My thoughts were to then receive and deduct health benefits through the corporation. It is now my understanding that this can be accomplished with LLC.

Would having a Corp allow for more growth and could it have some tax advantages too. Although, not sure what the tax advantages or growth benefits above and beyond an LLC are…as it seems that they would rival each other at face value.

Thanks for taking the time to post and respond.

3

A corp has no tax advantages over an LLC. There is no tax law for LLC, so you get to elect how to have the LLC taxed. If you choose corporate taxation, then the LLC is a corporation in the eyes of the IRS. So there is absolutely no difference.

Therefore, the LLC taxed as corporation gets the same advantages for employee benefit plans (health insurance, etc) as a “regular” corporation.

The LLC is simpler to maintain, as you know.

One very important difference, though, that you need to consider.

Corporate stock is considered an “investment”. As such, is it available to satisfy a judgement creditor in the event you are personally sued and lose. So when you rear-end someone in a pinto, they get a judgement against you,and they are awarded your stocks in IBM and wiggler, inc. Now they own the company that owns the rental property. You can figure out how well that works out for you.

Member interest in an LLC is considered “personal property” by statute. At such it is not available to satisfy a judgment creditor. While they can receive a charging order against LLC income, they cannot gain control of the business and its assets. You can overcome the charging order and effectively frustrate your adversary. (another reason why you want to loan the company money rather than make an equity contribution.)

Both the Corp and LLC protect the owner from liabilities arising within the business. Only the LLC protects the business from the owner’s liabilities.

Now, RW is going to tell you how a NV corp doesn’t have to have annual meetings, issue stock, or other things to “get around” this important issue. While this may be true, and with all due respect to RW who brings much to the REI table, my concerns would be:

  1. Plaintiff gets to choose jurisdiction. Moving the case out of NV may castrate the “no stock was issued” defense.
  2. Has it been around long enough to have significant court action to back it up?
  3. Things that sound too good to be true usually are.

Even the LLC form hasn’t been as tested in the courts as the old corp GP/LP setup has been. But look in the yellow pages at how many law forms have LLC, LLP, PLLC after their name. That tells you something.

4

I found these sites online and must say that I am in no way affiliated with any of them. Not sure of the cut and paste protocal.

This one shares the debate LLC vs. Corp: http://www.mycorporation.com/newsletter/archives/Nov02.htm

This one had a quick Q&A to the following questions:

http://www.incplan.net/realestate.html

Q: How does an LLC differ from an S Corp. or a Limited Partnership?

Q: Why is the LLC particularly suited to the real estate business?

Q: Who can own an LLC?

Q: Are there drawbacks to the LLC?

Q: Why select the LLC over the Limited Partnership?

Q: Is the LLC the preferred form of entity for residential and commercial real estate businesses?

Another site that examines many questions too: http://www.mrlandlord.com/llcs/

A question has arisen from looking at these…I have noticed many of the larger management, investment and development companies are incorporated. Could that possibly be because LLCs did not exist when they were formed.

What about growth and passing the entity along when I die? A corporation will still exist. What about an LLC? What is the protocal for adding an owner/investor to either entity?

5

Wigglers,
there are benefits to a corp vs. LLC. Ask yourself this question …“why do states even offer different entities to do business from?”

Because there are advantages to all of them! Your SPECIFIC situation may render the fact the you would want to do business as a sole proprietor. Heaven forbid, this is probably the worst form of structure, but hey, who am I to tell you. my point is that everyone has an opinion. If the LLC were the best, then why don’t you see names like “Microsoft LLC” or “IBM LLC” or “General Mortors LLC.” (I use these only as illustrations).

you need to first decide what it is you want to accomplish. Then you talk to a CPA or Attorney and figure out the best entity structure. it may involve multiple structures and multiple types of entities.

If you are looking for asset protection … you MUST have PRIVACY.
an LLC just simply does not provide this layer of PROTECTION.

ask yourself this question … “would I rather defend an expensive lawsuit involving my [ownership interest] LLC or is it better that the plaintiff could not find the [owner] Corporation.” put another way, if the plaintiff’s attorney can’t find any assets that you own, including cash or private homes, automobiles etc… do you honestly think he will recieve a settlement.

But,
that same attorney can and will attack your ownership interest in the LLC. it happens all of the time. Take for example: if you run over your neighbors kid accidentally, and you have ownership interest and equity in a LLC, rest assured, you are not out of harms way. Your ownership is at risk and will be attacked. Here is where you would use a NV c-corp to “lien up” the LLC, thus showing no equity to go after.

6

publicly traded corporations are corporations because only corporations can sell stock. eg: to be publicly traded you must have a corporation.

both of these sites are incorrect regarding LLC taxation. well, incomplete is more accurate.

estate transfer is simpler with an LLC because it is personal property and avoids probate. Corporate stock “investments” may be tied up with estate transfer issues.

partial interest transfer in an LLC is allowable, thereby simplifying transfers to heirs of partial interests.

corporations sell stock to “new” owners. LLC’s simply add membership. both are simple and easy.

7

mcwagner,
Nevada corps do indeed have to have annual meetings as with any other corporation. I don’t see how you say this “gets around” the important issue. I am not even sure what you mean. What is the important issue?

to answer mcwagner’s questions:

  1. Plaintiff gets to choose jurisdiction. Moving the case out of NV may castrate the “no stock was issued” defense.

RESPONSE #1- so the nominee officer flys out for a court hearing and tells the judge honestly and truthfully, he does not know who the owner is, no stock was issued. How would he know? then he flies home and the defense sits there with a dumbfounded look…now what?

  1. Has it been around long enough to have significant court action to back it up?

Resonse #2 - has what been around long enough? corporations have been dated back to the 1600’s. is that long enough?

  1. Things that sound too good to be true usually are.

RESPONSE #3 - i agree. you can’t protect every dollar or asset but you can minimize the effects a frivalous lawsuit or government interdiction may cause you.

WIGGLERS,
you hit it on the head! The LLC was first allowed in the
US in 1977 when Wyoming passed a Limited Liability Act.
I beliveve many of the corporations that you have investigated were formed after 1977.

8

I, for one, would not want to base my asset protection model on "no, your honor, I do not know who the owner of the corporation is. "

When the judge starts to think that the corporation was formed solely to avoid having to disclose who the owner is, I imagine he can get very creative very quickly. Maybe even freeze the corporation’s assets until someone comes forward? I don’t, however, think that his answer will be “well, mr plaintiff, better luck next time.”

Sounds more like a gimmick than a solid plan.

9

mcwagner,
after re-reading my post, i came to realize that I may have been sarcastic in answering your questions, I apologize for that. I was merely trying to ilustrate my point.

as for basing your entire asset protection plan on this idea [I don’t know who the owner is], I would agree with you. i would not base my entire plan on it, [but I would consider it] when push comes to shove and this method has stood up in the courts, I would have to say, leave your technical “planning” in the waste paper basket and use what has been proven to work. Don’t re-invent the wheel. If you don’t like it, use “bearer” shares, and you can accomplish the same thing.

a judge cannot hold the nominee director or officer in contempt of court or declare him a purjuror for telling the truth. even if you use “bearer” shares and the stock ledger is subpoena, and all it says is that the shares were issued to the “bearer,” my question is who is the bearer? the only answer is “I don’t know” and you are protected!

lets look at the worst case scenario… they find out that you have some sort of ties to the company in the form of a “bearer Share”, the day you walk into court and are asked if you are the owner of the corporation you can still say truthfully - “NO” because you just gave the bearer shares to the gentleman in the hallway and asked him to hold onto them for you until you get out of court. do you see how it works yet.

A judge cannot freeze the corporation because he suspects something. that is just silly. that would be like saying that because I “might” own stock in microsoft, a judge can freeze microsoft stocks and assets. It would have to be PROVEN without a reasonable doubt that fraud was committed, and then he may only be able to attack my interests ie…stocks, etc… and I am not saying that you should commit fraud. Just structure yourself legally adn you will have no problems.

If it is a gimmic, why then does the State of NV incorporate over 8,000 new businesses a month?

Why does the state of NV speak about these benefits on their State run website?

Why do people like Madonna, Mel Gibson, Robert Wagner, and many other celebs use NV corporations to protect their assets. Do you think Madonna has a checking account in her name at Bank of America? Do you think if they used an LLC, they would have Privacy?

YOU HAVE THE LEGAL RIGHT TO PROTECT YOUR ASSETS. Why is it that when the Rich & Famous implement the same strategies it is called “Financial Planning”

but when the average Joe does the same thing, it is looked upon as Sleezy or you are a criminal? Get over it! it is the same thing.

10

some thoughts.

  1. I had my sister (the atty in the family…) search for “bearer shares” or “bearer stock” in Nevada case law. Came back empty. Now, I would expect such a superior strategy to have been tested by the courts. If it has been, we can’t find it. If you know of cases, I would like to know of them.

  2. “Bearer shares” are not listed in the NV SOS information as a “benefit” of doing business in NV.

  3. With bearer shares, who votes? who controls the votes? Just curious.

  4. On the chance that the “bearer shares” stragegy doesn’t work, and you just testified that you don’t own the stock, you’ve just committed a felony. Out of the frying pan…

  5. There is a legal term called “beneficial interest”. You may not own stock directly, but we’re pretty sure that the court would find that you have indirect control of the company. Now you say that you don’t “own” the company, but you have control over it? That’s pretty thin. Anorexic, as Mel Gibson once said.

  6. So you give the bearer shares to the guy in the hall. What about the gift tax? Oh, you sold them for $1? And you’re going to report that loss on your tax return, right? Suppose the IRS finds out that you are using bearer shares to obfuscate ownership or evade taxess? Sounds like Club Fed time.

  7. If the court cannot determine who owns the company, they may impute ownership to whoever exercises the most control. Who signed the lease, deed, mortgage?

  8. If the court cannot determine who owns the corporation, will it be considered dissolved?

  9. If the bearer shares are located, will the court determine that the chain of ownership constituted a fraudulent transfer?

This just in!! 1986, in the case of Schwabacher v. Zobrist, 102 Nev. 55, 714 P.2d 1003, which confirmed that an ownership interest in a corporation is not valid as to the corporation until that interest is registered with the corporation. In fact, the case went on to say that when a stock transfer isn’t registered on the corporate books, the person transferring the stock stands as a trustee for the person receiving the stock. Doesn’t sound much like the idea that there somehow exists a provision under Nevada law that authorizes “bearer shares” that can be transferred like cash. To the contrary, it appears that Nevada case law stands for just the opposite proposition.

Finally, do you really think that a judge is going to stand for this sham? If it doesn’t make sense to you, it won’t make sense to them, and this plan just doesn’t make sense. To date I’ve been a plaintiff in a suit, a defendant, expert witness in two cases and appointed by a court to liquidate a partnership. Judges don’t like being told “I don’t know” and they most certainly CAN take away your company (or dissolve your partnership) WITHOUT proving beyond reasonable doubt that fraud was committed. Trust me, I was there.

NV incorporates 8,000 a month because absent the truth, people believe what they’re told.

Show me one, just one, court case upholding bearer shares and I’ll shut up.

11

Mark,
It is understandably frustrating to see my point if you don’t see through what I am saying. There is a simply reason why people incorporate in NV. It is for privacy. Just like why corporations that incorporate in Delaware go there because their laws are better suited for companies that are publicly traded.

It is ok to challenge everything, you should be a trial attorney, you would probably win many cases. But there is something missing. let me explain.

  1. glad to see that you had you sister (the atty) look up case law on bearer shares. I could have told you that to my knoweledge there is not any. The light should come on now. The NV corp. code doesn’t prohibit them, so they have been accepted and allowed since 1978. If there is not any case law on it, and people have used it to protect their assets for 28 years, does that tell you something. it should. Can it be challenged…sure…has it…No! therefore it works, for now. who knows what will happen in the future. then you can change strategies. I should have stated in my last post that this concept has stood up to the legal system in NV (at least for 28 years) not to mislead readers that it has been challenged in the court system. I was incorrect in stating it that way.

  2. as for the NV SOS listing it as a benefit, I apologize for misleading you. I was implying [from my first post] that the state of NV lists most of the benefits I spoke about on their website, ie no taxes, No I.R.S. Information Sharing Agreement, Stockholders are not Public Record. use this link to see for yourself: http://sos.state.nv.us/comm_rec/whyinc.htm[url][/url]

  3. A strategy that I have seen to work is don’t issue any shares at all so the issue is really academic. you can assign each corp. a User Id and Password allowing the person with that knowledge to control the corp., just like you do with Etrade, Ameritrade, etc [you would do this with your nominee officer/director thus protecting your identity]. this strategy also allows for the nominee/director to appear in court and truthfully say he does not know who the owner is. If it ever goes to court. but there obviously hasn’t been a case on the books since at least 1978. You proved that, or your sister did. which only solidifies that this strategy works, for now.

  4. who knows if there is a chance it will not work. what I do know is that it has not been challenged for 28 years. someday, we will see whats in the frying pan…until then we have to wait.

  5. I spoke with our nominee director/officer and he said that he has never seen a case or inquiry in his 11 years in this business per a “gift tax” or “bearer shares.” He is a nominee officer/director for over 10,000 corporations. And has never once been asked under oath or otherwise about “bearer shares,” a “gift tax,” or the “beneficial owner.” These are “red herring” issues usually touted by competitors as reasons for not buying a NV corp. That is ok. everyone has a different view of the same objective. We merely illustrate what we know to work. When a new concept comes along we will analyze that too.

Our goal is financial privacy. What a lawyer or Judge can’t see, they can’t see (or ask about). Nothing is perfect, including NV corps., but if you have a different and/or superior product to a NV corp. to provide individuals with privacy, please let me know! [b][/b]