A business that rebuilds used aircraft parts for resale provides an illustration of a company making Nevada’s corporate environment work to its benefit. The division of the company that purchases the aircraft parts was incorporated in Nevada, while the corporate headquarters remained in Washington state. All told, this arrangement saves the company about $50,000 in excise taxes annually.
“This is a good example where it makes sense for a company to incorporate in Nevada, because the business is saving itself some money,” said Bonnie Simon of Corporate Credibility LLC, a consulting firm that helped the aircraft parts operation set up its Nevada operations. “Company owners should always ask themselves if they’ll save money by incorporating in Nevada. That should be the main issue.”
One of Nevada’s major areas of commerce, it appears, is incorporating businesses. Lawmakers and the secretary of state have spent close to two decades revising the state’s corporation codes to make Nevada amenable to new business filings. Current Secretary of State Dean Heller and his predecessors hoped to make Nevada the “Delaware of the West” in building a business-friendly environment.
In 2003, more than 60,000 new business entities filed incorporation papers in Nevada; in 2004, an average of 5,000 new businesses registered each month. People living outside Nevada formed roughly 80 percent of those new businesses.
The state receives various fees from these corporations. According to the Nevada secretary of state’s Website, the commercial recordings division and its various sections generated close to $41 million in revenue during fiscal 2003. The division’s Carson City office is the largest revenue-producer, with receipts in excess of $36 million during fiscal year 2003. The Las Vegas commercial recordings office generated more than $4.1 million in revenue. Additionally, expedite fees for all division offices exceeded $6.3 million in 2003, compared to $6.1 million in 2002.
The secretary of state’s office promotes numerous reasons to incorporate in Nevada, most having to do with a business-friendly tax structure. On its Website, the secretary of state lists as the primary motivations as:
- Nevada lacks a corporate income tax.
- Corporate shares are not taxed.
- There isn’t a franchise tax.
- Nevada is one of a handful of states without a personal income tax.
- The state does not have an agreement to share information with the Internal Revenue Service.
- Annual fees are nominal.
- There are minimal reporting and disclosure requirements.
- A business’s stockholders are not a matter of public record.
Another firm that helps businesses with corporate filings throughout the United States – The Company Corporation – recommends two states to its clients, primarily based upon the type of organization to be incorporated. It refers publicly-traded companies to Delaware and entrepreneurial-type operations to Nevada. Raisa Gusakova, an incorporation specialist with the Wilmington, Del.- based consulting company, cited the Silver State’s laws governing business protection and liability, as well as a business-friendly tax structure, as the foremost benefits to incorporating a business in Nevada.
“Nevada is very pro-business, but it’s a state that offers much more than getting away from paying certain taxes,” Gusakova said. “Other states charge much more than Nevada. Our main clients are small law firms and accounting firms. These are the type of businesses that can do well by incorporating in Nevada.”
Unlike Delaware, where the laws are skewed in favor of shareholders, Nevada corporate laws favor the officers and directors of a business, making it nearly impossible to “pierce the corporate veil” in a lawsuit. In other words, it is much tougher to go after someone’s personal assets if a business is sued. Simon said that only twice in the past 25 years has a Nevada business been pierced on a state level. Also, Nevada has one of nation’s best homestead laws.
“California has the highest piercing rate in the country at 54 percent,” Simon said. “That means there’s a one in two chance that you could get sued personally. Still, the main question to ask yourself is if you’re saving money by setting up your corporate headquarters in Nevada.”
A secondary advantage to incorporating in Nevada is that stockholders, directors and officers do not have to live or hold meetings in Nevada, nor do directors need to be stockholders in the corporation.
Also, officers and directors of a Nevada corporation are protected from personal liability for lawful acts of the corporation. Nevada corporations can purchase, hold, sell or transfer shares of their own stock, and Nevada corporations may issue stock for capital, services, personal property or real estate, including leases and options. Directors in a Nevada corporation may determine the value of any of these transactions, and their decision is final.
Simon said one strategy that makes incorporating in Nevada pay off is when a business sets up dual corporations. “You can have a business incorporated in both California and Nevada,” she said. “You can place the purchasing corporation in Nevada. The Nevada corporation bills the California entity and pulls money out of that state to pay for the purchasing arm in Nevada.”
Because the majority of businesses incorporated in Nevada are actually located out of state, a growing number of companies now assist other businesses with incorporating in Nevada, acting as those firms’ resident agents in the eyes of Nevada law. Nevada Corporate Headquarters, a 12-year-old business, has some 20,000 clients worldwide that have filed corporate papers in Nevada, said company vice president Michael Potter. These filings have included limited liability companies (LLCs) and limited partnerships, as well as corporations.
“Over the last 20 years, the rate of new businesses has been steadily growing, but it has really taken off in the past 10 years,” Potter said. “Nevada respects the privacy of a business and when someone is looking at Nevada, we point out the stability here.” Potter said the costs of having a business domiciled in Nevada are minimal, but a company needs to have a bank account, an office presence and phone account in the state. By serving as the resident agent for their clients, Nevada Corporate Headquarters acts as the business’s eyes and ears in the state.
“We have a couple of clients who are constantly traveling,” Potter said. “One is a celebrity in the beauty business who set up a corporate headquarters here. According to her instructions, we answer her phones and faxes and forward all correspondence. The person can travel the country doing seminars. That is kind of the growing trend for Nevada businesses.”
Derek Rowley, president of Nevada Resident Agent Association, said the Silver State leads the nation in the number of resident agents, providing a unique aspect to the state’s corporate business structure. Rowley said the association, whose members agree to abide by a code of ethics, lobbies the Nevada Legislature to help keep the state’s corporate climate business-friendly.
“Our reputation as having a pro-business environment has created a nice cottage industry here,” Rowley said. “The resident agent’s role is defined by statute. About five or six years ago, the resident agent was virtually unknown. Now, we have about 40 member firms that represent approximately 50,000 companies. That makes what we do the largest business association in the state.”
Several resident agents pointed toward the ease in filing corporate documents with the state. In marketing to prospective Nevada businesses, Nevada Corporate Headquarters poses various questions an entrepreneur and business owner must ask, and points out the state tax situation, regulatory climate, stability, flexibility, privacy and low filing fees. Many of the resident agent firms also provide tax and accounting advice to their clients.
“Our company is 12 years old and we’ve grown steadily,” Potter said. “I think you’ll see the trend of incorporating in Nevada continue with the banking and insurance industries. Companies know Nevada has plenty to offer. The state is a very attractive place to do business.”
