Nevada Corporation: Everything You Need to Know
Forming a Nevada corporation comes with distinctive benefits as the state has many features that make it an attractive place to establish a commercial presence.6 min read
What Is a Nevada Corporation?
Forming a Nevada corporation comes with distinctive benefits as the state has many features that make it an attractive place to establish a commercial presence. If your priority is legal protection under the state’s unique regulations, there are a number of advantages and disadvantages that come with incorporating your business in Nevada.
Understanding The Playing Field
Although Nevada is 35th in the nation in population and much of the state is mostly vacant, federally-owned public lands stretching into the West’s Big Sky horizons, its urban centers – Las Vegas, Reno, Carson – are flourishing economic engines that have spawned some of the world’s largest entertainment and gaming corporations. Caesars Entertainment, MGM Resorts International, and Howard Hughes Corp. are among multi-national corporations with their headquarters in Nevada.
But the “Silver State” is also the corporate home of many job-generating mining and manufacturing industries. Among the reasons why is Nevada’s business-friendly incorporation laws that are modeled after those in Delaware. The state’s incorporation regulations offer benefits most other states generally don’t. Among them: no corporate income tax, no taxes on corporate shares, no annual franchise tax, no equity transfer tax, and no personal income tax.
While Nevada’s incorporation laws are designed to reduce time, lower costs, and avoid the potential of commercial litigation for savvy business owners, they can also be complex and difficult to negotiate for an out-of-state novice to a degree that it may not make sense for many small businesses to incorporate in the state unless they are actually doing business in the state.
Need State-Issued Business License Before Incorporating
It is important to understand right from the beginning that any entity that seeks to incorporate in Nevada must first secure a business license. Generally, a business license is required by county or city governments while incorporation is a state-regulated designation. Not so in Nevada, which is one of only five U.S. states that requires business owners first get a state-issued business license before proceeding to incorporate.
Nevada Articles of Incorporation
Once companies have their business license, they have to create Articles of Incorporation and corporate bylaws with the Nevada Secretary of State. These are critical foundational documents that should be drafted by an attorney because if flawed or incomplete, they could engender a great deal of legal pain in the event of disputes among owners.
Within the Articles of Incorporation, a corporation must file an Annual List of Officers that identifies its officers, including its President, Secretary, and Treasurer, as well as its Director. The Director must be at least 18-years-old and include his or her address and contact information. The Director, nor the officers, have to be state residents. The annual list must be renewed every year on the anniversary date of official incorporation.
As of August 2017, the filing fee is $125 for the Annual List of Officers and $200 for the business license registration. As with anywhere else, other permits or licenses may be required depending on the nature and location of the business.
Selecting A Name
To begin the formal process, the first step in incorporating a business in Nevada is to select and register a unique name for the corporation. In Nevada, if a business’s name is a person's name, it must be followed by a legal designation, such as "Inc.," "LLC," "Limited," or "Corporation."
The rules and advice in crafting a name for a corporation in Nevada are the same as it is elsewhere. The name must be distinctive to avoid confusion with existing business’s names. It should clearly sell your product or services. Check with the state’s Secretary of State’s website to ascertain that another entity is not operating under the same name. The state’s website also posts a listing of "Restricted Designations," which identify specific names that cannot be used unless approved by the state. Certain words that cannot be in your business’s name include words that might confuse your business with a government department or administration.
Appointing a Director
Per Nevada requirements, there has to be a minimum of one director in your corporation. Nevada does not require that person to reside in Nevada, but directors must be at least 18 years old.
What is Required for Articles of Incorporation?
An “article of information” refers to the document that a corporation has to file. The following is information required in the document by the state of Nevada.
- Stock and shares: Authorized shares must be listed in this form. An increase or decrease in the number of shares can affect filing fees.
- Registered agent: Corporations must appoint a registered agent who resides in Nevada. The registered agent must have a physical address in the state and must be able to accept documents on behalf of the corporation, including important legal and tax documents.
Secure an EIN
As with any business anywhere in the United States, you will need to secure an Employer Identification Number (EIN) from the IRS, even if you are the only employee of your corporation.
The EIN, which is often described as a “business’s social security number,” is not only necessary for tax purposes but banks will use it along with your incorporation paperwork in order for you to open business accounts.
Of course, as with anywhere else, it is a good idea to open banking accounts in your corporation’s name to ensure the business’s financial affairs do not get entangled with your personal finances.
Benefits of Nevada Incorporation Laws
Among the business-friendly aspects of Nevada’s incorporation regulations is the state does not disclose corporate information to the IRS. It is the only state that does not do so. Since there is no law requiring stockholders be identified, ownership information is private and not public domain as it is elsewhere.
Investors are allowed to purchase unlimited stock in a Nevada-based corporation without being publicly named, but the state certainly knows who they are or, at least, who signs their checks because the state assesses annual fees on capitalization that increases substantially after $75,000 in calendar-year gains.
Because there are fewer reporting and disclosure requirements than imposed by most other states, fewer administrative hoops to leap through and timelines, are relatively short from filing initial paperwork to official recognition as a corporation, start-up corporations require less capital to get up and running in Nevada. State regulations give Directors great discretion in amending corporate bylaws.
In addition, the state’s regulations offer extensive legal firewalls in shielding corporate directors and officers from personal liability in any litigated actions against their corporation, although they can be held legally and criminally responsible for any acts of fraud attributed to their company.
Drawbacks To Incorporating In Nevada
While there are regulatory and tax advantages to incorporating your business in Nevada, not every business can benefit by doing so. If, for instance, your Nevada-based company does business in other states, you can be taxed by those other states. Therefore, the fact that the state doesn’t assess franchise fees and corporate or individual income taxes only applies for income derived within Nevada.
Nevada requires that its state-sanctioned corporations must be qualified to do business outside the state, even if it has no need to do so. Nevada requires prospective corporations to have a “domestic corporation” designation from at least one other state before incorporating in Nevada. Failing to secure this designation can incur financial, even criminal, penalties and lead to being barred from doing business in the state.
Ultimately, this is for your own protection. If a small business owner registers his corporation in Nevada believing he will gain some tax and disclosure advantages, he or she will eventually have to register their business in their home state as a “foreign” corporation, raising administrative costs and filing fees. In other words, the expense in doing so may exceed the benefits.
The bottom line is, while there are advantages for large Fortune 500 publicly traded corporations with thousands of shareholders to be based in Nevada, for a small-business owner or mom-and-pop company, doing so only provides benefits if you are a state resident or doing a great deal of business in Nevada.
Plus, if you are looking for an “incorporation bargain” with Delaware-modeled incentives and Nevada-like privacy and tax advantages, it costs 75 percent less to incorporate in Wyoming than in does in Nevada.
If you need help determining if incorporating your business makes sense for you, post your legal needs on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.