Business

Don’t Fall For These 4 Nevada Incorporation Myths

Delaware has long been a popular state for US companies to incorporate for a variety of reasons. Recently, many have touted Nevada as the new Delaware, citing benefits such as better asset protection, tax savings, and increased privacy. Before you believe the hype, make sure you know the truth about incorporating in Nevada.

Myth 1: it’s harder to undo the corporate veil

Many will claim that corporate laws in Nevada make it more difficult to lift the corporate veil or hold shareholders accountable for corporate actions. True, Nevada is reluctant to do so, but keep in mind that companies are likely to end up in court in the state in which they operate, not the one in which they are incorporated. The court in your state of operation may choose to use its own state law instead of Nevada law as well, especially if it has no connection to Nevada except incorporation.

Myth 2: You save on taxes

While Nevada does not have corporate taxes or individual state taxes, this does not necessarily translate into tax savings. Unless your business is headquartered and incorporated in Nevada, you can only avoid state corporate income tax on income earned in the state. If your business is in Colorado, you will have to pay Colorado taxes.

Myth 3: you can be anonymous

While the Nevada Secretary of State will not release corporate or official information to the IRS, the IRS can still access this information. Most of the information is required on tax returns anyway, and if there is a dispute or audit, the IRS can cite the information it requires. You are even more likely to be audited if you are an out-of-state company incorporating in Nevada!

Myth 4: Nevada has a commercial court that rivals Delaware

More than a decade ago, Nevada established its own specialized commercial court to rival the Delaware court system. Unlike the Delaware commercial court, the Nevada court system does not publish written opinions, which means that it lacks established case law interpreting corporate law. The court system simply does not have the predictability that makes forming a Delaware LLC or corporation so attractive.

While incorporating or forming an LLC in Nevada may be a good fit for your business, don’t assume that it will automatically give you the advantages you need as an out-of-state entity. In many cases, the best option is to incorporate in your home state or in Delaware.

Choosing a state to form an LLC or a corporation is an important decision and there are many ways to go wrong. If you are unsure, consult an attorney or corporate services company to determine the best course of action.

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