Nevada is known as one of the three incorporation-friendly states, the other two being Delaware and Wyoming. Unlike Delaware that targets larger corporations, Nevada traditionally positioned itself as being more suitable for small, privately held companies.
To learn more about specific advantages of incorporation in Nevada please consult our article Advantages of Incorporating in Nevada.
It is safe to assume that vast majority of companies registered in Nevada have no physical connection to the state whatsoever. However, recent political and fiscal developments in Nevada, which brough introduction of expensive Business License and Initial List filing requirements, as well as outrageous renewal fees and rough treatement of delinquient businesses, have significantly reduced the attractiveness of the state.
Nevada is now considered “the worst state to do business in” by the non-partisan Tax Foundation that has pointed to the new changes to Nevada taxation. Recently, annual list and business license fees which were already the 3rd highest in the nation were increased to $350 for LLCs and a whopping $650 a year for profit corporations. Nevada also has a new “Commerce Tax” on your GROSS REVENUE if your combined gross revenue of all of your Nevada business entities is over $4 million per year! In other words, the state will combine the income of multiple corporations of any common owner and apply the Commerce Tax if the combined revenue reaches the $4 million threshold.
For the last several years there was a steady outflow of companies from Nevada, primarily to a much more friendly Wyoming through the process of domestication. No positive change is expected any time soon, and this is one of the reasons we often recommend our clients, looking to incorporate in Nevada, to consider Wyoming or Delaware instead.
Another important question to consider is a question of nexus – if your business is physically located in another state, and you think that by registering it in Nevada you can escape registration in your state (for example, notoriously expensive California), we have to disappoint you. Even though your business will be organized under the Nevada law, you will still have to foreign qualify it in your state, which in other words means you will have to maintain two (most probably expensive) entities instead of one.
If you decided to open a new business that will be based in Nevada you can choose from several options:
1. Sole Proprietorship: Sole owners of Nevada-based businesses could opt for sole proprietorship as the easiest form of business organization. Not the most recommended, given the liability a sole proprietor assumes as a result of owning a business. No registration with Nevada Secretary of State is necessary, but it is recommended to register a Fictitious Firm Name (DBA), and if you plan to hire employees then also obtain an EIN.
2. Single Member LLC: Limited liability company, as the name suggests, is an entity that allows its owners to limit the liability of the business to the entity itself, shielding the owners’ personal assets. This type of entity is recommended for most small businesses.
By default your LLC will be taxed as “disregarded entity”, meaning you will file your LLC tax return as part of your personal tax return. Keep in mind though – LLC is a flexible entity, which means you have the option of electing it to be taxed as S-Corp (assuming you are a U.S. person) or C-Corp. Learn more about LLC here, and about the details of forming LLC in Nevada here.
3. Corporation: You can also form a corporation and be a sole shareholder with 100% of all shares. Corporations have more formalities than LLCs , but provide similar limited liability protection. That’s one of the reasons this entity type is often more suitable for bigger companies, or those who seek major investment.
Corporations can be taxed as S-Corp or C-Corp, with each form of taxation having its pros and cons. Keep in mind, you can elect your corporation to be S-Corp only if you, as the sole shareholder, are a U.S. person.
1. General Partnership: Like sole proprietorship, this entity type does not require registration with the Nevada Secretary of State, but it also does not protect the owners from business liability, and therefore is usually not recommended. A General Partnership needs to register a Fictitious Firm Name (DBA), and obtain an EIN.
2. Multiple Member LLC: like Single Member LLC for sole owner, Multiple Member LLC is often the entity of choice for small and new businesses with more than one partner.
3. Corporation: Since corporation can have many shareholders, and transfering ownership is relatively easy (though share transfer) corporation might be a good choice of entity for business with partners.
Keep in mind though – S Corporations are limited to 100 shareholders who must be physical U.S. persons. That means corporations owned (partially or fully) by non-U.S. persons or legal entities, cannot be elected as S-Corp, and therefore subject to double taxation of an C-Corp. In cases like that it would be recommended to consider choosing LLC instead.
4. Limited Partnerships: Limited partnerships come in different forms, depending on the state (LP, LLP, LLLP). Though Limited Partnerships have their own purpose and place, for most cases we believe an LLC would serve its owners well enough, therefore at this point we do not cover Limited Partnerships.
An existing company registered in another state or country (called “foreign corporation”, “foreign LLC”, etc) looking to conduct business in Nevada might be required to foreign qualify in Nevada. This rule typically applies to companies looking to open a physical branch in Nevada, lease an office or warehouse, hire employees, etc.
“Foreign” businesses that do not create “strong nexus” by moving physically to Nevada might still be required to obtain Sales Tax Permit from Nevada Tax Commission if selling taxable products or services using local dropshippers.
Companies registered in Nevada enjoy from a wide spectrum of services provided by the Nevada Secretary of State and Nevada Tax Commission. Such services include but not limited to:
Our company specializes in working with state government agencies such as Nevada Secretary of State and Nevada Tax Commission in order to make your business registration and maintenance easier and smoother. We invite you to browse our website to learn more about our services and prices – and never hesitate to contact us via via phone, chat, or email if you have any questions.
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