Should you Incorporate in Nevada?

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Perhaps you have heard about the business down the block that is incorporated in Nevada. If you’re like a lot of us, you said to yourself, “I’m going to look into that, just to see if incorporating in Nevada is really all it’s cracked up to be.” Then your business started taking all your time, and you just never got around to investigating this relatively recent phenomenon called the Nevada Corporation. Perhaps this article can help.

Until quite recently, the Delaware corporation was the most highly touted and sought after form of out-of-state incorporating. Delaware has recently counterattacked Nevada, claiming many benefits that the Nevada version cannot deliver. Nevada’s most potent point is that Delaware has an 8.7 percent state corporate tax vs. Nevada’s having none. You can view the pros and cons at mynevadacorporation.com. Let’s look at the other standard arguments the folks in Nevada use:

Shelter from corporate income tax. The first argument is that a Nevada charter will shelter your company from paying corporate income taxes. This argument is, in part, based on the reality that some states don’t exempt S corporations from corporate income tax. Since Oregon is not one of those states, you are just as well off with a standard Oregon-chartered S corporation—assuming that you meet the federal qualifications to incorporate as an S. (You can have no more than 75 shareholders—none of them companies, issue only one class of common stock, get less than 25 percent of gross revenues from passive sources, etc.) If your company doesn’t qualify as S, or if you simply want a C corporation, then the Nevada approach might look a bit more attractive. It could, indeed, possibly save you some serious money.

“Complete” anonymity. In Nevada, unlike most other states, stockholders’ names and addresses are not a part of the public record. However, the annual report to shareholders requires that you include the names and addresses of the president, secretary, treasurer and directors, but nobody else. Nevada does seem to provide more privacy (though Delaware claims that its charter is more private than Nevada’s). Of course, if your business has only two or three shareholders who are also, by default, the officers of your corporation, your privacy will be less than complete no matter in what state you file.

Protection from the I.R.S. A few years ago, the governor of Nevada announced at a press conference that Nevada refuses to share any tax information with the I.R.S. You have to think about this one. Now, doesn’t it seem logical that if this indeed is the case, the I.R.S. would have a special eye out for Nevada corporations—especially those being operated from another state—a state like Oregon? Protection from the I.R.S. just might be a hollow promise.

Shelter from personal income tax. Since Nevada has no personal income tax, one might be tempted to see Nevada as a safe personal income tax haven. If you choose to move your company physically to Nevada, that would definitely be the case. Also, if you operate from Oregon, you could choose to leave some or all of your profits in the Nevada corporation, where it would actually be exempt from Oregon income tax.

Trading goods for stock. In Nevada corporations, the owners can issue shares of stock to pay for goods and services in place of cash. Although this provides a nice convenience, remember that whatever valuation you place on stock for such uses must be met by IRS policies. It’s hard to get around those people. One popular ploy is the use of two or more corporations to dodge taxes and to provide limited liability to your company. The business owner establishes one corporation in Nevada and another in his or her home state. The Oregon corporation does normal business and is subject to all state taxes. However, it doesn’t have any assets, and it never shows any substantial profit. How does it operate without any assets? It leases them from the Nevada corporation. Any income the Oregon version might make can either be paid directly to the owners as salary or sheltered in the Nevada corporation as lease payments, purchase of goods or supplies, or any of several other categories of payment. Does it sound too good to be true—or to be ethical? Check the system out, if you’re interested.

It is being used in Oregon with some success, if I can trust my sources. Of course, you are free to use the multiple-entity concept with two or more Oregon LLCs or corporations, as well, with some of the same advantages. Obviously, the Nevada corporation has many other minor plusses and minuses. For additional information on this topic, contact the Company Corporation at www.corporate.com. Their information is generally objective and balanced. If you decide to investigate incorporation in Nevada, be sure to do thorough research, and consult both an attorney and a C.P.A. (This article is in no way intended to take the place of legal advice.) Take care to match your company’s needs with what the Nevadans have to offer. Nevada corporations aren’t for everybody—or for every type of business.

Lowell H. Lamberton is a professor of business at Central Oregon Community College. You can contact him at llamberton@cocc.edu or by phone at 383-7714.

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