If you are looking for the best location to choose for incorporating your business, there are many reasons to incorporate in Nevada. Nevada corporations are suitable for many different types of businesses, but there are many myths and scams that are spread about the process.
Choosing a Nevada Corporation
There are numerous advertisements extolling the various benefits of incorporating in Nevada. Nevada is known for liberal incorporation laws and tax policies that favor businesses. While Nevada does offer many pro-business benefits, including strong privacy laws, asset protection and tax advantages, there are downsides as well. California law does not require companies to incorporate in their home states, but there are dangers to incorporating outside your home state. California has long established case law that it applies to any corporation doing business in California, which could have numerous disadvantages.
Benefits of Incorporating in Nevada
If you will actually be operating your business out of Nevada, it is generally advantageous to incorporate in the state. If your office is in Nevada, or you have a warehouse in Nevada which you use as your shipping headquarters, Nevada’s favorable laws may apply to your corporation. Nevada corporations do not pay a state tax or an annual franchise tax. In California, any business that does business in the state of California is required to pay a minimum of $800 in franchise taxes. In Nevada, it is extremely difficult for someone to seize your personal assets or that of your shareholders to pursue debt owed by your corporation. The Supreme Court of Nevada has a history of protecting the privacy of Nevada shareholders and directors, even when a corporation does not adhere to basic formalities. Unlike California and most other states, Nevada does not require corporate shareholders to disclose personal information. This means it is possible for shareholders to be nearly anonymous as long as the Nevada corporation does not engage in business in another state.
The Loss of Benefits When a Nevada Corporation Does Business in California
Doing business in another state such as California results in the loss of many advantages for Nevada corporations. California’s pseudo-foreign corporation laws state that once a foreign corporation does business with California, it is required to register in California. A foreign corporation must qualify under California’s business practices when it engages in repeated transactions within California. There are sanctions for failing to qualify, including civil penalties that can damage your corporation. There is also the risk that contracts may be rescinded if you fail to meet these qualifications. In order to register as a corporation in California, your Nevada corporation must pay a franchise tax, apply for a business license and disclose its officers and directors. This lack of privacy is one of many reasons why Nevada corporations choose to avoid doing business in California. Your Nevada corporation will also have to prepare and file two different tax returns in Nevada and California. This means that if your corporation ever stops doing business, it will also have to file two final income tax returns to shut the business down in both states. While California is one of the most restrictive states when it comes to business law, foreign corporations face even more restrictions.
These reasons should help you proceed with caution when it comes to weighing the pros and cons of incorporating out of your home state. In order to receive the most personalized counsel when it comes to deciding where to incorporate your business, you should consult a reputable attorney. An attorney may be able to provide guidance in the local laws that will affect your corporation and offer an honest perspective on whether incorporating in Nevada is right for you.
Contact a Lawyer for Help Deciding Whether to Incorporate in Nevada
Call the Sutton Law Center today at (775) 824-0300 for help with the decision to incorporate in Nevada.