A common question that we get at Incfile is whether forming an LLC in Nevada is the best state to do so. (Other common states that are mentioned in this type of inquiry are Delaware and Wyoming.) This is a popular question because each state has its own regulations and requirements which can help or hinder your business as you’re getting started. If you’re thinking about where to start an LLC, S Corporation, C Corporation or Nonprofit, here are some facts that will guide you during your decision making process.
Benefits of an LLC in Nevada
So what makes Nevada stand out among the other 49 states for entrepreneurs and small business owners who want to start an LLC? Considered to be a “tax haven,” Nevada is quickly attracting businesses in large part because of the gaming industry which has allowed Nevada to negate business income taxes, franchise fees, capital gains taxes, state corporation taxes and inheritance taxes. Corporations and LLCs aren’t required to even file a tax return because the state relies on gambling to garner revenue. According to Michael Spadaccini on Entrepreneur.com, there are several other attractive benefits:
- Nevada doesn’t have an Information Sharing Agreement with the IRS. (There’s no information to share, because there is no income tax department.)
- Shareholders in a Nevada corporation and owners in a Nevada LLC are not a matter of public record — shareholders can remain completely anonymous. (The real victory is not to ever be sued: Nevada’s privacy protections can go a long way in achieving this goal by effectively hiding business owners from public view and thereby protecting them from litigation. )
- Officers and directors of a Nevada corporation can be protected from personal liability for lawful acts of the corporation.
- Nevada corporations may purchase, hold, sell or transfer shares of its own stock.
- Nevada corporations and LLCs may issue stock for capital, services, personal property or real estate (including leases and options). The directors may determine the value of any of these transactions and their decision is final. This freedom allows Nevada corporations to issue shares for the services of employees and consultants.
Drawbacks of an LLC in Nevada
Sounds great, right? Don’t pack your bags just yet. While Nevada’s privacy protection covers owners and shareholders, it doesn’t apply to company officers, directors or an LLC’s members. Nevada is one of the rare states that requires an organizer to appoint at least one director’s name in a corporation’s articles or at least one member in an LLC’s articles of organization. These are considered public record and can be accessed through paying a minimal fee.
Secondly, while avoiding paying a ton in taxes sounds great, it only applies if all of the revenue is derived in Nevada or other states that do not have an income tax. For example, if you are based in Nevada but have a store location in California, you are still required to register your LLC or corporation in the state that your business is physically located. Basically what that means is that your Nevada LLC has a legal right to operate in the State of Nevada but that jurisdictional authority does not necessarily extend to the State of California. Therefore, if you want the State of California to recognize your Nevada LLC, you would need to submit the required forms to obtain what is commonly referred to as a Certificate of Authority or Foreign Qualification.
The act of obtaining a Foreign Qualification or Certificate of Authority can be costly and also subjects the owners of the LLC to the same taxes that domestic companies are subjected to. Furthermore, the annual cost of maintaining a registered agent and paying the Annual Report and Business License Fees, in the case of Nevada, can be very expensive for a company just starting out.
The bottom line is that every state is different and every company is unique. There are countless factors that are equally important in determining where to set up shop (including state labor laws, cost of living, customer base, production costs, etc.). Once you’ve narrowed down the best state for your specific company, Incfile can start the process for forming your LLC or corporation in any state. Our business formation packages include a lifetime of customer support, online access to your incorporation documents and a your first year of registered agent service for free. Review our online business formation packages — starting at $49 + state fees — to start your business today.