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Nevada or California
With all the hype about Nevada, you would get the impression the last place you should incorporate would be at home.
Clearly, Nevada incorporators gain no benefit if you incorporate in your home state, and therefore generally discourage such a thing. U.S. Business Strategies is able to incorporate clients in all fifty states and the District of Columbia, so we have no reason to promote one state over the other. We are, however, in a position to be more objective on the subject.
Corporate laws in Nevada are without question superior to those in every other state when it comes to attracting business, but the decision to incorporate in Nevada should be based on various factors, not the least of which are the tax laws of your own state. All income tax states want any income earned therein taxed. Most states take great pains to investigate and punish those who come to town (i.e., your foreign corporation) thinking they can make money there and pay no taxes.
If you are planning on using a Nevada corporation to do business in your own state, first find out what bureaucratic hurdles you may have to overcome to do so. Don't do business illegally or you will only live to regret it later.
Since California is one of the most restrictive states in which to do business, let's see how they treat foreign corporations (a foreign corporation is any corporation formed in another state). If you incorporate in Nevada, but live and do business in California, you will need to get permission to do business in California. Without getting too technical, you basically have to pay California for the privilege. You will pay over $150 to get a Certificate of Qualification to do business in California. Secondly, if you were enjoying the privacy you had with Nevada, you can kiss that goodbye, because California wants you to file their own version of your list of officers and tell them where your California office is now located.
Here is the big surprise. You are now subject to California's Corporate Franchise Tax requirements ($800 per year minimum after the first year). So every dollar you generate in California will be subject to California taxes, not to mention the fact that you still have to pay taxes on any wages paid to you by your Nevada corporation, thus subjecting you to California income tax. So much for tax free Nevada.
So what benefits would you get by having your Nevada corporation do business in California (or any other state for that matter)? Here are a couple:
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There still may be a level of privacy you can enjoy, since California need not know you are the shareholder of the corporation.
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If your corporate assets are kept in Nevada, you have an additional layer of protection as opposed to keeping your assets locally where they could be seized.
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There are some cases where a lawsuit may require a plaintiff to sue your corporation in Nevada as opposed to California. Nevada corporate laws are more likely to protect you there.
What are other negatives to consider before using a NV corporation in your own state?
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When you do business in your own state, you are agreeing to subject your company to the laws of that state, so Nevada laws will not be applicable. A lawsuit can happen all the same.
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Most states generally honor court judgments from other states. If your NV corporation loses a lawsuit in your own state and then retreats back to Nevada where the assets are, a plaintiff could potentially deliver the California judgment to a Nevada judge and the Nevada courts could enforce it.
The benefits of Nevada truly lie in Nevada's privacy and tax laws. Doing business in your own state with a Nevada corporation pretty much undermines the best features of a Nevada corporation. There are other powerful ways to utilize Nevada. Do not get the wrong idea; Nevada is awesome when used properly. Speak with a U.S. Business Strategies consultant for more information on how a Nevada corporation might benefit you.
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