Nevada Corporations - Some common mistakes

When forming an entity in Nevada, whether it is a Corporation, Limited Liability Company or Limited Partnership, they have to be formed properly because failure to do causes both legal and tax challenges.

The business of forming Nevada corporations has skyrocketed over the past several years, and there are quite a few people around the country who are saving a lot money in state taxes by incorporating in Nevada. And some states, like the state of California, aren’t thrilled about losing state tax revenue to Nevada, especially when people still reside and operate their business there while, at the same time, running all their profits through a Nevada bank account, thereby avoiding payment of California state taxes.

As in anything, there is always the existence of misinformations. This is also true in forming Nevada corporations. The increase of companies that are forming Nevada corporations without doing their homework has taken many people down the path of uncertainly at best, and illegal activities at worst. It is currently estimated that close to 70% of the people that incorporated in Nevada are NOT going to be able to take advantage of the tax benefits that the state offers. It is becoming economically profitable by other states to review their procedures to ensure their tax is being collected and to do some checking. In the future, you will begin to find people who thought they were getting away with tax savings begin to become audited for actions they have done improperly over the last few years.

In other words, just because you haven't been audited by the state taxation authorities does not mean that you have a properly structured business. Keep in mind, we seldom get audited for something we did last year; usually it was for something we did 2-3 years previously. And when states such as California begins auditing people and is looking to collect penalties and interest for the previous three years because you failed to register to do business in California, they’ll be sorry!

Here are the most common mistakes people have made when incorporating in Nevada:

Relying on Bearer Shares

Not having any employees in the corporation

Having to rely on privacy as the primary asset protection strategy

Having an independent contractor take fringe benefits that are entitled to employees

Failing to actually being based in Nevada

Not issuing any stock

Thinking a Nevada corporation is an asset protection tool

Owning a Nevada corporation without a business license

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.