There are many reasons for chosing Nevada as your Corporate home.
Inability tp Pierce the Corporate Veil, Privacy, Asset and Liability Protections, Indemnification of officers and directors, no Joint and Several Liability,Jurisdictional advantages are just some of the advantages.
Nevada courts have a history of case law protecting the "corporate veil", making it the most difficult in the country to pierce. Nevada courts have allowed the piercing of a corporate veil once in the last 21 years, and that was due to fraud resulting in harm to a Nevada resident. The case was Rowland v. LePire, 99 Nev. 308, 662 P.2d 1332 (1983)
Piercing the corporate veil. What is it? When you form a corporation whether it is in Nevada, California, California or the Bahamas, certain corporate formalities must be followed. Remember, a corporation can do everything you can do except think or act, which a corporation does through it's board of directors, officers and shareholders. If the corporation does not keep accurate records of meetings through the minutes it becomes easier for someone to attempt to pierce the corporate veil of the corporation if it is involved in a lawsuit.
Nevada has established case law which helps prevent attempts at piercing the corporate veil.
Nevada has a three-prong test that must be proven (all three parts must be proven) to pierce the corporate veil:
- The corporation must be influenced and governed by the person asserted to be the alter ego;
- There must be such unity of interest and ownership that one is inseparable from the other; and
- The facts must be such that adherence to the corporate fiction of a separate entity would, under the circumstances, sanction fraud or promote injustice.
The burden of proof of the three "general requirements" is on the plaintiff who seeks to pierce the veil, and a failure to prove any of the three will result in the veil not being pierced! In Nevada unless you can prove fraud the corporate veil will not be pierced! That is awesome protection! The landmark case that proves this point is the case of Roland vs. Lepire (1983). As always we recommend you keep accurate corporate records to protect the corporate veil and have adequate capitalization also. In this case it was clear that there was inadequate capitalization, the corporation had a negative net worth at the time of the trial, there were no formal directors or shareholders meetings ever held, no dividends were paid to shareholders, nor did the officers or directors receive salaries. There also was no corporate minute book, nor any evidence that minutes were kept. On the other hand, the corporation managed to secure a general contractor’s license and a framing contractor’s license, "both in its name." There was also a corporate checking account. The court concluded that, ‘Although the evidence does show that the corporation was undercapitalized and that there was little existence separate and apart from [the two key shareholders]…evidence was insufficient to support a finding that appellants were the alter ego of the…corporation. The Nevada Supreme Court has made clear that unless the plaintiff is able to meet the burden of proving that "the financial setup of the corporation is only a sham and caused an injustice," the veil is unlikely to be pierced.
Again-Only Once in the Last 22 Years has
the Corporate Veil been Pierced in Nevada!
In 1987, the Nevada Legislature passed a revolutionary law that permits corporations to place provisions in their articles of incorporation that eliminates the personal liability of officers and directors to the stockholders of Nevada Corporations.
This is one of the main reasons large corporations like Citibank are domiciled in Nevada. Delaware and a few other states soon adopted lesser versions of this law, but Nevada’s law remains among the most thorough and comprehensive in the country.
Contained in the Nevada Revised Statues (78.037), the law in part reads as follows:
"The articles of incorporation may also contain: A provision eliminating or limiting the personal liability of a director or officer to the corporation or its shareholders for damages for breach of fiduciary duty as a director or officer, but such provision must not remove or limit the liability of a director or officer for: Acts or omissions which involve intentional misconduct, fraud or a knowing violation of law"
Nevada Corproation Statutes allow for the indemnification of all officers, directors, employees, stockholders, or agents of a corporation for all actions that they take on behalf of the corporation that they had reasonable cause to believe was legal. This indemnification can include any and all civil, criminal and administrative action. (See NRS 78.751.) Nevada law provides complete protection for the officers and directors of Nevada corporations.
Another significant change in Nevada law is the abolishment of joint and several liability. Joint and several liability means that should a judgment be entered against several defendants, they will each assume equal liability for the full amount of the judgment, regardless of their relative fault in causing the damages. Nevada now requires the court to assign a percentage of fault to each defendant, from zero to one hundred with the total equal to 100 percent. Every defendant that is found liable is required to pay a share of the total judgment no greater than his/her fault.
What about Nevada vs. Delaware?
The main rights in Delaware law benefit shareholders of public corporations. This attracts large, public companies that trade on various exchanges across the country to provide the best protection to their shareholders. Delaware’s corporate law, with regards to corporate takeovers is the strongest anywhere in the US.
Nevada corporate law has surpassed Delaware in its efforts to insure the protection of the rights of small corporations. Delaware for example, has adopted a statute that allows the corporation to limit the liability of a director for monetary damages. However, it has far to go to be compared to similar statutes adopted by Nevada. Listed below are acts which officers and directors would be protected under Nevada law, but exposed under Delaware Statues:
- Acts or omissions not in good faith.
- Acts by officers are not exempt from monetary damages under Delaware law.
- Breach of a director’s duty of loyalty.
- Transactions involving undisclosed personal benefit to the officer or director.
- Acts or omissions that occurred prior to the date that the statute which provides for indemnification of directors, was passed and approved.
An additional requirement in Delaware is officers must reasonably believe that they are performing his or her duties in a manner that is in the best interests of the corporation. This requirement is not present in Nevada.
If You Are a Foreign Corporation Doing Business in
Your Home State, Which State Laws Take Precedence?
Let’s say you formed a Nevada corporation for your California sports bar. You would have to register it as a foreign corporation doing business in California (because you are physically doing business there). Why would you do that as opposed to just forming a California corporation? You now know that Nevada is the hardest state in which to pierce the corporate veil and go after the board of directors personally. This is why many Hollywood performers, Citibank, Home Shopping Network and many other companies are based in Nevada.
If your California sports bar were sued, that lawsuit would occur in California courts. However, if someone tried to pierce the corporate veil, that would occur in Nevada. There are many additional expenses involving travel to Nevada to try the case in a state where corporate law is already favorable to the corporation being sued. The Coproation shouls ALWAYS state in it's contracts that Nevada is the jurisdiction to decide any disputes.
When you operate the Nevada corporation doing business in California you will enter into several agreements and contracts. Those contracts and agreements would mainly fall under the laws of California. But you may actually have several choices.
There is what is called "choice of law jurisdiction". What does that mean? It means you can enter into a contract and decide that it falls under the laws of Nevada (state of domicile) not California (state of doing business). If there were a challenge you would have the laws of Nevada in your favor. There is also a "choice of forum". This means you may want the case to be heard in the state you choose, which in most cases would be Nevada! Someone in California, bound by a choice of forum in Nevada, may have to travel to Nevada for that lawsuit to occur. That may curb this person’s enthusiasm to sue your company! There are also strategies involving two or more corporations that may be used that can minimize your exposure in California to next to none.
By the way, do these advantages of having a Nevada entity, and applying piercing of the corporate veil, choice of law and forum jurisdiction in Nevada, also apply to LLC’s? Absolutely!
What is the Investment Difference Between Forming an Entity in my Home State vs. Forming a Nevada Entity and Registering to do Business in my Home State?
By now you should be convinced that there are many advantages to forming an entity in Nevada first, then registering as a foreign corporation in your home state. Of course if you make Nevada your Corporate Home you would not have to worry about registering as a foreign corproation.
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Silver Shield Services, Inc.
3315 Hwy 50
Silver Springs, Nevada 89429
(775) 577-4822 - Telephone
(775) 546-9955 - fax
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