Nevada corporation

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A Nevada corporation is a corporation incorporated under Chapter 78 of the Nevada Revised Statutes of the U.S. state of Nevada. It is significant in United States corporate law. Nevada, like Delaware (see Delaware General Corporation Law), is well known as a state that offers a corporate haven. Many major corporations are incorporated in Nevada, particularly corporations whose headquarters are located in California and other Western states.

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Piercing the veil

Nevada law provides extremely strong protection against piercing the corporate veil, where a corporation's owners can be held responsible for the actions of a corporation. For instance, from 1987 to 2007, there was only one case that successfully pierced the corporate veil of a Nevada corporation, and in this case the veil was pierced due to fraud on the part of the corporation's owners.[ citation needed ]

Because the provisions on "piercing the corporate veil" are corporate governance matters, if a corporation chartered in California, for example, (which has much more creditor-friendly provisions) is sued anywhere, California law applies. In contrast, if 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 the requirements to hold the company's owners (i.e. shareholders) personally responsible. In other words, 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." Note that foreign corporations, including those, for example, incorporated in Nevada, may be subject to California Corporation Code 2115.

Director primacy

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. 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.

Tax benefits

Nevada's tax structure is also a large benefit to incorporation in Nevada. Nevada has no franchise tax. It also has no corporate tax or personal income tax. [1] There is an annual $200 "Business License Fee" which is paid to the Secretary of State's office at the time of formation or renewal of the corporation.

Nevada additionally applies a 1.475% tax rate for most General Business employers, as opposed to Financial Institutions, on wages after deduction of health benefits paid by the employer and certain wages paid to qualified veterans—that tax is equivalent to a personal income tax. The first $50,000 of gross wages is not taxable as a state tax, however federal taxes do apply. [2] Nevada also imposes a "Commerce Tax" on businesses with Nevada gross revenue exceeding $4,000,000 within a taxable year. [3] Nevada and Texas are the only two states that do not have information sharing agreements with the Internal Revenue Service. [4] In addition there are,

Regulatory competition debate

Organizers of a business generally have a choice on where to incorporate the business. In the United States, corporations are generally organized pursuant to state law, rather than federal law. Moreover, a business need not establish or maintain a physical presence in a state in order to incorporate under the state's general corporation law. If the corporation transacts business in a state other than the state of incorporation, it is considered by the other state to be a foreign corporation. See NRS Chapter 80. For example, a business may be headquartered in San Jose, California but incorporated in Nevada. The corporation is a Nevada corporation and the State of California will consider it to be a foreign corporation. See California Corporations Code Section 171.

In the United States, states generally, but not invariably, follow the internal affairs doctrine. "The internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation's internal affairs ... because otherwise a corporation could be faced with conflicting demands." [5] Under the internal affairs doctrine, courts will generally apply the law of the state of incorporation to the "internal affairs" of the corporation.

States can derive revenues through the incorporation of businesses. These revenues include direct payments to the state in the form of filing and other fees. The state can also receive revenues indirectly through businesses (law firms, resident agents, accounts and other service providers) to corporations. The Nevada legislature has tried to make Nevada an attractive alternative to Delaware as a state for incorporation. In many instances, it has tried to "out Delaware" Delaware.

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. Nevada's lack of a court dedicated solely to business matters has resulted in calls for the adoption of a chancery court system, which would have exclusive jurisdiction over all business cases and will assist in growing Nevada's body of business case law. [6]

See also

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<span class="mw-page-title-main">Corporate law</span> Body of law that governs businesses

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<span class="mw-page-title-main">Income tax in the United States</span> Form of taxation in the United States

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Foreign corporation is a term used in the United States to describe an existing corporation that conducts business in a state or jurisdiction other than where it was originally incorporated. The term applies both to domestic corporations that are incorporated in another state and to corporations that are incorporated in a nation other than the United States. All states require that foreign corporations register with the state before conducting business in the state.

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<span class="mw-page-title-main">Corporate tax in the United States</span>

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<span class="mw-page-title-main">Internal affairs doctrine</span>

The internal affairs doctrine is a choice of law rule in corporations law. Simply stated, it provides that the "internal affairs" of a corporation will be governed by the corporate statutes and case law of the state in which the corporation is incorporated, sometimes referred to as the lex incorporationis.

In business and commerce, the term flag of convenience is the use of a place, jurisdiction, state or country as a nominal (in name only) "home base" for one's operations or charter, even though either no or virtually no operations or business are conducted there. It is also used where the organization operates in one place even though nearly all of its customers are from elsewhere. It is a type of jurisdiction shopping.

<span class="mw-page-title-main">United States corporate law</span> Overview of United States corporate law

United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governance rights, found mostly in the Securities Act of 1933 and the Securities and Exchange Act of 1934, as amended by laws like the Sarbanes–Oxley Act of 2002 and the Dodd–Frank Wall Street Reform and Consumer Protection Act. The US Constitution was interpreted by the US Supreme Court to allow corporations to incorporate in the state of their choice, regardless of where their headquarters are. Over the 20th century, most major corporations incorporated under the Delaware General Corporation Law, which offered lower corporate taxes, fewer shareholder rights against directors, and developed a specialized court and legal profession. Nevada has done the same. Twenty-four states follow the Model Business Corporation Act, while New York and California are important due to their size.

Tax protesters in the United States advance a number of constitutional arguments asserting that the imposition, assessment and collection of the federal income tax violates the United States Constitution. These kinds of arguments, though related to, are distinguished from statutory and administrative arguments, which presuppose the constitutionality of the income tax, as well as from general conspiracy arguments, which are based upon the proposition that the three branches of the federal government are involved together in a deliberate, on-going campaign of deception for the purpose of defrauding individuals or entities of their wealth or profits. Although constitutional challenges to U.S. tax laws are frequently directed towards the validity and effect of the Sixteenth Amendment, assertions that the income tax violates various other provisions of the Constitution have been made as well.

Louis K. Liggett Co. v. Lee, 288 U.S. 517 (1933), is a corporate law decision from the United States Supreme Court.

References

  1. Why Incorporate in Nevada Archived 2007-07-13 at the Wayback Machine
  2. "Modified Business Tax Information & FAQ's".
  3. "WelcometoCOM". tax.nv.gov. Retrieved 2017-02-18.
  4. Nevada Department of Taxation: Federal Income Tax; Nevada Tax Notes, 174, April 2011.
  5. Edgar v. MITE Corp. 457 U.S. 624, 645 [73 L.Ed.2d 269, 285, 102 S.Ct. 2629](1988).
  6. Joshua Halen, Transforming Nevada into the Judicial Delaware of the West: How to Fix Nevada's Business Courts, 16 J. Bus. & Sec. L. 139 (2016), https://msu.hcommons.org/deposits/objects/hc:35706/datastreams/CONTENT/content