What it means
In the United States, a company can be incorporated in any state, regardless of where it does business. The state of incorporation decides which corporate law applies to matters such as director duties, shareholder rights and how the company is run.
Nevada competes with states such as Delaware by offering a favourable set of rules. Among the features often cited are that Nevada has historically not charged a state corporate income tax, that it allows relatively flexible rules about directors and shareholders, and that it offers strong protection for directors from personal liability in many cases.
It also does not require the names of shareholders to be listed in public filings. Rules and rates change, so anyone relying on these points should check current requirements.
Nevada is not tax-free. Companies pay an annual list of officers fee, hold a state business licence, and may owe a commerce tax based on gross revenue above a threshold.
Where a business actually operates matters too, because it can owe income, sales and payroll taxes to the states and countries in which it has offices, staff or customers. If a Nevada corporation does business in another state, it generally has to register there as a foreign corporation and follow that state's rules.
That means incorporating in Nevada does not remove the need to comply elsewhere, and it can add the cost of a registered agent and annual filings in two places. For many small businesses the simplest choice is to incorporate in the state where they operate.
Founders also compare Nevada with Delaware, which has a large body of court decisions and a specialist business court, and is the usual choice for companies planning to raise venture capital. Investors often prefer Delaware because the rules are familiar.
A business that wants privacy and lower state-level cost, but not a venture-backed route, may find Nevada attractive. A final point is that the privacy and the tax features have been used in marketing by incorporation services, and some are overstated.
A company must still keep proper books, file federal tax returns and follow anti-money-laundering rules. Anyone forming a company for tax reasons should take advice from a qualified accountant or lawyer.
In practice
Real-world examples.
Example
A freelance software developer based in Texas forms a Nevada corporation to hold her consulting business. Because she works from Texas, she also has to register as a foreign corporation there and pay Texas fees. She ends up paying for two sets of filings and decides that a Texas company would have been simpler.
Example
A mining exploration company with claims in several states incorporates in Nevada because of its flexible corporate law and its familiarity to local lawyers. The company raises $5,000,000 from private investors. Its legal team has experience with Nevada rules and can advise quickly.
Example
An online retailer with no staff outside its home state incorporates in Nevada for privacy. It still collects sales tax in the states where customers live, as required by law. The founder learns that the choice of state affects legal structure and not tax obligations on sales.
Case study
Seen in the real world.
Silverline Outfitters is a fictional online clothing company used for illustration. In this illustrative story, its two founders, based in Florida, were told by a formation website that a Nevada corporation would save them thousands of dollars a year in tax. They paid $1,500 to set up the company and a further $800 a year for a registered agent.
Their accountant explained that profits earned from Florida operations were still taxed according to Florida rules, and that the company needed to register there as a foreign corporation at extra cost. After reviewing the numbers, they found no tax saving and about $2,300 a year of added fees. They moved the business into a Florida company at the next filing date and agreed to take professional advice before future structural decisions.
Watch out
Common mistakes.
- Believing a Nevada corporation pays no tax. It still faces federal tax, fees, licences, and taxes in the states where it operates.
- Assuming incorporation in Nevada removes the need to register elsewhere. A business operating in another state generally must register there as a foreign corporation.
- Ignoring the investor angle. Venture capital investors commonly prefer Delaware, so a Nevada company may need to convert later.
Questions
People also ask.
Do I need to live in Nevada to form a Nevada corporation?
No, but you need a registered agent with a Nevada address to receive legal papers.
Is a Nevada corporation anonymous?
It offers more privacy than many states in public filings, but owners can still be identified under federal reporting and banking rules.
How is it different from a Nevada LLC?
A corporation has shareholders and a board, while a limited liability company is more flexible and usually passes profits to its owners for tax purposes.
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