Has anyone had any success in creating a Nevada Corporation in conjuction with entities in their home State? Do you think it is worth it from the beginning or something to setup later when you have more assets?
Thanks for your help.
DP
Nevada entities are only for business that is actually conducted in NV. Anything else is a waste of time and money.
I agree with BLL. And, btw, I actually sell do-it-yourself Nevada incorporation kits and limited liability company formation kits from my ecommerce sites. Despite that seeming conflict of interest, I think the best state is almost always your home state. And I think the Nevada incorporation angle is way, way, way oversold.
The purpose of setting the Nevada Corp was for the state entity to pay the Nevada corp for services or products. In this way it gets more money out of your state thus lowing state taxes and reducing liability from being sued by having less equity in the property. Is this a viable thing?
The NV corp would have to register in the home state and becomes subject to all it’s laws, including paying taxes on the income earned in the home state, having a local registered agent, paying the annual fee, and dislosing ownership records.
I guess it wouldn’t be worth setting up if this is the case.
So if I understand this correctly, I cannot buy things from a Nevada Corp unless they are registered in my state and what I do buy from a Nevada Corp, they (the Nevada Corp) will have to pay state taxes on profits made from my state?
Thanks for the responses,
DP
If you have a NV presence and actually ship products from NV to the home state, the NV corp is not subject to state taxes. If you plan to run the NV corp from your home state and conduct business in the home state, it is subject to state taxes.
AND the NV corp is usually considered a “foreign” corp in your home state. This usually means higher fees than charged to the in-state entities.
For what it’s worth, I don’t think Oldguy is right in his statement that a foreign entity would be taxed more heavily. There are constitutional problems with that.
California is learning this the hard from Washington LLCs who fought and have now overturned (almost) its LLC franchise tax.
Also for what it’s worth, I agree with everything that BLL says in his posts.
foreign LLC’s aren’t taxed more heavily, in most states they pay a higher registration fee than domestic entities.
My personal experience is in CA and TX. I didn’t say “higher taxes.” What I did say was higher fees. Both CA and TX charge higher fees to “foreign” entities.
FWIS, many of the states on the east coast don’t have different filing fees for foreign entities.
Thanks for all of your reponses.
The Nevada Corporation set up was a suggestion from the course of a reputable and seasoned rei guru. I’m still a little shakey on the idea and leaning towards trusts and llc’s.
For about $4500 you can buy a Nevada “Shelf Corp” with 2-years of seasoning and use it as a lending source for your home state LLC (so I’ve been told). This is the only way I can see where a Nevada corp would be useful (there is a lot of Nevada, shelf, S-Corps available).
If you are the only owner/member of the new company you’re setting up (or if it is just you and your spouse) you may want to consider forming an S-Corp in your own state. Or, if you form an LLC, file a form 8832 with the IRS and have the LLC taxed as a S-Corp because the IRS will view your LLC as a Sole Proprietorship anyway and tax you accordingly (unless you have multi, non-family, members). Once your LLC has matured for two, or more, years it too will have the same borrowing potential as the “seasoned” NV shelf corp. The Shelf Corp will simply give you a two-year head start with your (low interest) borrowing abilities.
The biggest advantage of having the separate NV corp verses a seasoned R.E. company is that you would list its’ primary business as “Business Management Services” rather than “Real Estate” – lenders, in general, do not like to lend to Real Estate related companies. You’ll inevitably get much better credit lines with the “Business Management Services” than you will with a Real Estate company.
Hope this sheds a little more light on the subject for you. I’m going through the same process right now.
Good luck!
For the record, the top AP experts in the country (not gurus hawking material at seminars, but people who teach lawyers about AP, write the books that gurus quote, and are actually involved in the cases that define AP case law) do NOT recommend NV unless there is a physical presence in NV. There are actually states with cheaper fees, no annual reporting requirements, and no reputation for crooks.
The IRS views NV as a haven for tax fraud, evasion, and abuse and is putting an extra emphasis on entities there. NV wants to be the choice for entity formation. It never will be because DE has the case the law that provides certainty without the stench scammers have brought to the state.
Gary, I think you are getting ripped off. Lenders don’t care about the business. They want to see an ability to pay and want the owner/principal to guarantee the loan. The entity can be newly formed or 2 years old or 100 years old. A two year old company will have a history and these shelf-corporation don’t. It is a way people who set up entities can get paid when a customer stiffs them. Scammers use them because they can get an entity with an EIN that has someone else’s information associated with the IRS filings. Many big lenders will loan to a new LLC or corporation as long as there is a personal guarantee. This set up does keep the loan off the personal credit report and doesn’t cost $4,500.
BLL,
My information sources come from a CPA, one of those business credit building companies, and the vice president of a small bank – not real estate “gurus”.
The main reason I mentioned NV Shelf Corps is because that is the subject and is where these types of entities can be found in abundance if someone wants to go that route (I have not). Of course, if you can find one in your own state that would be better. I probably should have clarified further. I, personally, still have many questions about Shelf Corps before I make any type of commitment (including ethical questions). Banks typically will not consider larger business loans unless the business is at least two years old (and, of course, has developed credit worthiness). If you bought a two year old shelf corp with no credit history, it would take another 6-9 months of good, systematic, credit practices to gain high level borrowing credentials (like if you need $75K to rehab a property and don’t want to pay a loan shark or HML …… ). If you start from scratch it would take two plus years to get to the same point. It truly DOES make a difference if your company is new or “a 100-years old” when it comes to getting credit.
It is not true about Banks not caring about what type business you are in. They consider some businesses riskier than others and that is why they are very reluctant to give loans to high risk ventures like home flipping without a “personal guarantee” (this comes straight from the horse’s mouth). The idea here is to develop your business credit independently from your personal credit when ever humanly possible. The more you mix personal with business (like guarantees) the greater the chance is that your LLC or S-Corp liability protection will be worthless if something goes wrong and the other guy has a good lawyer. In addition, if you keep giving Personal Guarantees for your business and having your credit reports pulled every time you do a deal, your personal credit won’t be worth much in the long run. I suppose it wouldn’t matter much if you’re only doing a house a year, but if you’re doing any volume at all, you may wind up with lower personal borrowing limits for your home projects or even have a hard time getting auto loans. I know you can’t always get around a PG, but every small businessperson should try to develop credit lines for the company separate from his/her own personal credit. It’s just common sense if you want to maximize your personal liability protection.
You’re right about there being a lot of NV scammers – I sincerely hope that you are not grouping me in with that sort. And, you’re right about DE corps – all the biggies file their C-Corps there because of the case law you mentioned (of course the C-corps are also subject to the double taxation issue …).
The sole advise from this famous rei guru was not to stiff the irs taxes but save on state taxes. The idea was that if you established a legal business in NV, then you sold services to the business in your state, it any proceeds would be tax free in NV thus reducing state taxes in your home state.
I sounds logical to me…?
depends on your state, I guess. In TX the franchise (business income) tax threshold is high enough that it seldom is an issue for RE investors. So, it’s not worth the hassle.
the reason most go to NV is because of the nondisclosure laws there
oh. right. Nevada doesn’t report stuff to the IRS, etc.
But they forget to tell you that banks, credit card companies, title companies, county clerks, insurance companies and just about everyone else shares information with everyone else.
true privacy is hard to come by (unless you want to get off the grid and eke out a living off the land in Montana somewhere)