Nevada LLC Incorporation

The Nevada LLC Myth

People often ask about the benefits of LLC formation in certain states. Besides Nevada, among the most requested are (in no particular order) Delaware, Wyoming, New Mexico and South Dakota. There are certain benefits that make each of the states appealing depending upon the audience. Only under rare circumstances, however, will those benefits outweigh the cost reduction, convenience and potential tax benefits of incorporating in your home state. Over the next few weeks I’m going to discuss each of these states in turn, beginning with Nevada.

The primary reasons I’ve heard about incorporating or forming an LLC in Nevada are (1) to save on state income taxes, as Nevada has no state income tax, or (2) anonymity. Anonymity is an obsession in LLC formation these days. People feel that. if there name isn’t on the LLC, it will be impossible to track them down for liability purposes. I’ve also heard Nevada has corporate entity laws and regulations that are unmatched and that the Nevada Series LLC provides a substantial benefit. Of the four listed reasons, basically none of them are true.

  1. The Anonymous LLC.

    Case law in an ever-increasing number of states is citing the hiding of ownership in an LLC as one criteria for potentially piercing the corporate veil under the alter ego theory. What this means is that, in determining whether the individual owners of a company can be liable for corporate debt, one factor to consider is whether they attempted to shield their ownership interest. While this isn’t true in every state, unless your principal place of business is in a corporate friendly state that allows anonymity itself, it’s probably not a good idea.

  2. Income Taxes.

    Yes, Nevada has no state income tax. If your primary place of business is in Nevada, that’s fantastic! You won’t be liable for income tax. If it’s not Nevada, it really doesn’t matter if you have a Nevada LLC as you will be responsible for the income taxes as prescribed by your state of domicile. If an LLC is formed in a state with no income tax but domiciled in a state with income tax, the law of the United States is that the state with income tax can tax all profits realized by that LLC.

  3. Nevada Corporate Law

    I only ask that you review the source of your information. As an attorney I can tell you that I personally see no benefit to Nevada law over any other state. No one has directed me  to any specific statute where Nevada is clearly superior to another state. This makes it difficult to give specific examples here. But then, consider that the source telling you Nevada has superior corporate law gave you specifics.

  4. The Nevada Series LLC

    The Nevada Series LLC is an umbrella LLC made up of LLC’s underneath it. The purpose of the series LLC is to keep all of the LLC’s involved in the series separate. This is done primarily for liability purposes. Each LLC in the series has assets separate and apart from the other. There is also a master LLC that controls all of the LLC’s in the series. Each LLC has its’ own members and is responsible only for its’ debts and liabilities. This would work great for certain companies, such as real estate holding companies.

    There are heavy expenses to consider (such as the requirement of bank accounts for each LLC in the series) that often make it not worth it. Further, there is no guaranty that states that do not have the series law in place will recognize the limited liability of the series. This could mean that, though you formed the series in Nevada, if you own property in a non series state and have a tenant injured in that other state, the entire series could be disregarded opening a wide range of liability difficulties for you and your business.

Don’t form a Nevada LLC unless your business is located there. When most of your income is derived from a state other than Nevada, don’t form in Nevada. By doing so you will come under scrutiny by the IRS and any other government agency that comes calling. You can avoid this by forming your LLC in your principal place of business. The government knows the reasons you read about before forming your Nevada LLC. They know what to look for.

Without a compelling reason to form outside of your primary place of business, don’t form an out of state LLC. I’m not telling you not to, as there are certainly many reasons to do so, but most of the time those reasons are only half truths and may make your life more difficult than you currently realize.  As always, don’t forget to contact us with your LLC formation problems!

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *