Nevada corporation
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A Nevada Corporation is a corporation chartered under the laws of the U.S. state of Nevada.
Prior to the legislative session of 2009, Nevada, like the states of Delaware (see Delaware corporation) and Wyoming, was previously well known as a corporate haven, however massive fee increases implemented in 2009 made it onerously expensive to maintain a business entity there. Many major corporations are chartered in Nevada, particularly corporations whose headquarters are located in California and other Western states.
The reason for this sort of a choice is that, in general, in the United States, a corporation which operates in more than one state (or country) has a particular state where it is incorporated, to which it is a domestic corporation. In all other states where it operates and has filed papers to be allowed to operate, it is a foreign corporation, and the requirements for corporate governance in the case of a law suit do not use the law where the corporation is sued, but instead, the law where the corporation is a domestic corporation. Nevada offers for US citizens or residents certain advantages over Delaware (while most US aliens prefer Delaware over Nevada).[1]
If a company can look past the exorbitant annual maintenance fees, Nevada is particularly attractive to privately-held corporations and its statute's default provisions are particularly favorable to management. As in the case of Delaware, critics of the Nevada corporate law believe that its provisions, and the Nevada state courts, are excessively friendly to corporations and their managers at the expense of shareholders' rights. This is not to say that public companies can't benefit from Nevada's flexible statutes.
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[edit] Legal benefits
Nevada's laws offer flexibility to a board of directors in managing the affairs of a corporation, and permit management to put in place strong protection from hostile takeovers. It also provides extremely strong protection against piercing the corporate veil, where a corporation's owners can be held responsible for the actions of a corporation. As of 2007[update], in all of the court cases involving a corporation, in a period of twenty years, only one case has the piercing of a corporate veil been permitted under Nevada law, and in this single case the reason was because of fraud on the part of the corporation's owners.
As noted earlier in this article, because of the provisions on "piercing the corporate veil" are corporate governance matters, if a corporation is chartered in California, for example, (which has much more creditor friendly provisions permitting this) is sued anywhere, California law applies, but a corporation chartered in Nevada, which operates only in California, is sued in a California court, the California court would use Nevada law in determining what the requirements permitting this, and in this issue Nevada law applies (which is much more supportive of the corporation's interest), even if the corporation only operates in California and has never had any other contact with Nevada and is simply chartered there as a "flag of convenience."
Nevada (unlike other states) permits the corporation's articles of incorporation to vest authority to adopt, amend or repeal bylaws exclusively in the directors, so that shareholders would not be able to change the corporation's bylaws.
Disputes over the internal affairs of Nevada corporations are usually filed in the Nevada District Courts, from which judgments can be appealed to the Supreme Court of Nevada, the state supreme court. Because of the large number of corporations chartered in Nevada, the courts in that state are more focused on the application of corporate law than the courts of most other states. Nevada's courts are developing a strong body of case law that serves to give corporations and their counsel guidance on matters of corporate governance, although Delaware and some other states have a larger body of such case law.
[edit] Fees
As of 2009, Nevada filing fees are amongst the highest in the nation. The 2009 Nevada Legislature (the "legislature") was seeking new revenue sources to cover budget deficits and decided that $61 million could be raised by increasing the business license fee from $100 to $200. Since Nevada's annual business maintenance fees were already more than four times the fees in other states with similar benefits (e.g., Wyoming), business advocacy groups and thousands of businesses sent emails to the legislature warning that if this increase were enacted, they would take their business to another state.[2] The businesses warned that they would also take their tourism dollars with them as well (Nevada's economy is driven primarily by tourism). The legislature ignored these warnings and implemented the increase anyway.[3] Business groups estimate that in enacting the business license increase that was intended to generate $61 million, that instead the state will lose $60 million a year annually in corporate filing fees in addition to hundreds of millions of dollars a year in related tourism and convention business. These figures are likely to be much more since the $61 million initially projected was based on the existing number of entities registered in Nevada, and not on the few entities that would be left after the business license was doubled.
[edit] Tax benefits
Nevada's tax structure is also a large benefit to incorporation in Nevada, but this is somewhat circumvented by the relatively high annual filing fees in the state of Nevada to maintain a business entity. Nevada has no franchise tax and also has no corporate income tax or personal income tax [3]. However, while Nevada likes to promote that there are "no corporation taxes" in the state, there is an annual $200 "Business License Fee" which is paid to the Nevada Department of Taxation in some cases (but not all) depending on the type of business being conducted. Nevada and Texas are the only two states who do not have information sharing agreements with the Internal Revenue Service.
[edit] References
- ^ "Delaware vs. Nevada". http://www.inctime.com/jurisdictions/united_states/delaware_vs_nevada.html. Retrieved on 2009-03-01.
- ^ [1]
- ^ [2]
