Once you’ve decided to incorporate, the question becomes, “Where?” The best choice is Nevada, hands down, no contest. Why?
The corporate veil in Nevada has been pierced only twice in the last 26 years, and both cases involved outright fraud.
In fact, there were other Nevada cases where the corporation didn’t do resolutions, minutes and meetings, had thinly capitalized the company, commingled funds, all practices that have lead to piercing in other states, and still, Nevada protected the corporate veil! Nevada is a pro-business state, meaning they strongly protect the business owner.
This low rate of piercing success (“piercing the corporate veil” is where a litigating attorney tries to prove in court that the corporate entity is really YOU and will try to seize your personal assets as well as your business assets, bank accounts, etc. Reverse piercing is where you are being sued personally and they will try to seize your business assets as well. Nevada’s protection applies to both) is less than 1/10th of 1% and this extremely low success rate will discourage even the most optimistic of litigators. He/she must consider the likelihood of a successful outcome in their lawsuit being extremely unlikely. Other states have as high as a 45-50% successful piercing rates (California is one of them.)
In Nevada, corporate officers and directors as well as LLC managers have always enjoyed the highest level of protection. However, a few years ago the President of the Nevada Registered Agents Association lobbied to have a bill passed that states INTENT to commit fraud must be proven in a court of law. Ask any attorney just how difficult that is.
Corporate officers/LLC Managers were already protected in Nevada like no other state, but, with this new legislation, it’s like adding the legal equivalent of five Kevlar vests in additional protection.
I researched this myself and found there were a couple of reasons that Nevada is so business friendly and has gone so far to protect the owners of corporations and LLCs.
First of all, Nevada is right next to California and has always been in competition with this neighboring state to attract business to Nevada. This is aided by California having a very unfriendly environment for business as any CA. business owner can attest to. The California Franchise Tax Board has been known to chase business owners to other countries to collect their fees which not even the U.S. Federal Government goes to such lengths.
Secondly, there is an independent mindset that Nevadans have a history of going back over a hundred years. Rural Nevada is comprised of mostly Mormons and Fundamentalist Christians. Yet, Nevada was the first state to legalize full blown gambling and is still the only state with legalized prostitution. Not where the population exceeds 200,000 people, like Reno and Las Vegas, but there are legal brothels in other counties (they dutifully pay their taxes and there has never been one case of HIV/AIDS reported from a legal brothel.)
It’s not that these vices are endorsed by rural Nevadans, it’s that Nevadans have historically resisted big government control. It boils down to “look, we don’t approve or participate in these types of behaviors, but, as long as you don’t make trouble for your neighbor, we really don’t care.”
This is also reflected in rulings by Nevada judges over the years. Their attitude has been “we don’t care what your state laws are, this is Nevada and corporate entities that are domiciled in this state are subject to Nevada’s statutes.”
There is also no corporate or personal income tax in Nevada (be careful, though, this applies to companies actually doing business and based in NV.) This is in Nevada’s constitution and will likely never be changed. It would take a constitutional amendment taking at least 5 years to pass and Nevada residents would never let that kind of legislation become law. Would you vote to tax yourselves when you haven’t been taxed for decades? To this day, even with the current financial crisis, gaming revenues from the Hotel/Resort Industry still provide the lion’s share of state revenues.
There have been arguments about advantages to forming corporate entities in other states such as Delaware, Wyoming and New Mexico but I will address this in another post that will show that Nevada is simply the best state…period.
See ‘ya next post, FranksternVegas.