No corporation is allowed to do business in a state unless it is formed there or qualified to do business there. Therefore, if a Nevada Corporation seeks to do business in another state, for example, New Jersey, it must qualify to do business in New Jersey by filing a registration statement with the Secretary of State. This is even more true if it involves real property, because it is impermissible for an unqualified corporation doing business in a state to hold real property there.

Should the Nevada Corporation fail to qualify to do business in the state in which it is located or holds property, then the state will simply ignore it as if doesn't exist and will ascribe ownership to the owners.

But, should a Nevada Corporation qualifie to do business in another state, then it will be governed by the corporate laws of that state and not the state of Nevada’s. Therefore, the secrecy or privacy provisions of Nevada law will not be applicable to the corporation!

The costs involved to qualify a Nevada corporation to do business in another state are, in most cases, the same costs to form a completely new corporation in that state anyway. The only real effect of using a Nevada corporation outside of Nevada is that annual registration fees as well as resident agent fees will double, without gaining any advantage if you simply filed a corporation in your own state to begin with!

It isn't any surprise that nearly none of the so called "asset protection consultant" groups relay to their "consultants" this bit of information. Therefore it is never passed on to their clients. Which means that the clients find out after the passage of a few years that all they have done is imposed extra fees over what they would have paid in their own state anyway, and all of this without any real increase in asset protection.

Regarding Nevada Corporations and the federal courts: federal courts are governed by Federal Rules of Civil Procedure. This means that federal courts aren’t duly concerned about contrary state law because, under the Supremacy Clause in the U.S. Constitution, they don’t have to be. Therefore, if you get sued in federal court, Nevada law won’t help you.

The state of Nevada must recognize the judgment of other states. This means that should a judgment be entered against the owner of a corporation in, let's say, the state of Missouri, the judgment would be enforceable against the owner’s stock in a Nevada corporation.

There are a few promoters of Nevada corporations who give the sales pitch that you can use Nevada corporations in order to avoid state taxes. This isn't true . Reread the beginning paragraph regarding the qualification to do business in other states. Second, all states are wise enough to recognize the arrangements in which someone who resides in the state of Kentucky attempts to avoid paying state taxes there by using a Nevada corporation. These states require disclosure of these arrangements. This means that, should you get caught doing this, both the interest and penalties will be bad.

The bottom line is that, regardless of what any promoter may tell you, Nevada corporations are not an asset protection cure-all. In fact, in all probability, a Nevada corporation would cause you more problems and expenses than if you simply formed a corporation in the state where you reside.

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.