What is a Nevada Corporation?
A Nevada corporation is a business incorporated in the state of Nevada, a state known to be business-friendly through its tax and corporate law statutes. Companies that incorporate in Nevada have several distinct advantages, including no state income tax, no franchise taxes, no personal income taxes, and no inheritance taxes.
Another unique advantage of Nevada corporations is that company officers and directors are well-protected against lawsuits arising from lawful business pursuits.
Understanding Nevada Corporations
Nevada corporations exist because of differing state laws about taxes and liability. As corporations are typically governed by state law, this creates an opportunity for states to position themselves as being more friendly to business than other states. Nevada’s business friendly laws make it a well-known corporate haven. Delaware has similar laws on the books, and a Delaware corporation functions similarly to a Nevada corporation.
- Nevada corporations enjoy a number of benefits for incorporating in Nevada, including no state income tax, no franchise taxes, and enhanced protection for the personal assets of a corporation's owners and directors.
- As corporations are governed largely by state law, this has created an opportunity for states like Nevada and Delaware to create business friendly environments.
- A Nevada corporation doing business outside the state is still subject to taxes in the other states where they operate.
Nevada has become a widely used tax haven, drawing a large number of West Coast-based companies in the United States. A company may have a headquarters in another state and still be incorporated in Nevada. Some individuals also choose to form a Nevada corporation to protect their individual assets. Not only does Nevada not have an individual or corporate state tax, it also is one of two states, along with Texas, that does not have an information sharing agreement with the IRS.
Nevada corporations are not entirely off the hook as far as state burdens, however. There is business license fee that is paid to the state that comes to $500 for corporations and $200 for other types of businesses. Additionally, the Nevada Commerce Tax was enacted in 2015 and is imposed on any business with Nevada gross revenues greater than $4 million.
Why Companies Become Nevada Corporations
If a company primarily operates in Nevada, they will naturally incorporate there. However, there are still non-Nevada based companies that choose Nevada. Many private companies are attracted to the state because of its strong protection laws relating to limited liability companies and relaxed rules around share issuance and corporate governance.
A term known as "piercing the corporate veil" refers to the ability of a plaintiff to go after the personal assets of a company owner or director. While piercing the veil is rare in any state, Nevada is well-known for its strict adherence to the protection of personal assets and information.
Advantages and Disadvantages of a Nevada Corporation
Nevada encourages businesses to incorporate in the state by offering a number of incentives. Along with the tax and legal benefits noted above, Nevada is lenient about the requirements it places on those corporations and their board members. For example, the stockholders, directors and officers of a Nevada corporation are not required to be U.S. citizens.
Nevada also has strong privacy laws that favor businesses. The names of the officers and stockholders of a Nevada company are not public record. The board of directors of a Nevada corporation does not have to hold meetings in Nevada. The state has minimal requirements in terms of annual reporting and disclosure documentation.
Despite all this, however, Nevada corporations that do business outside the state are still subject to taxes in the other states where they operate. Companies that do most of their business in California, for example, will have to register with that state and file tax returns there as well. If they fail to do so, they may be subject to hefty fines. So simply incorporating in Nevada does not necessarily lead to tax savings for a company if there operations are primarily based elsewhere.