Pros & Cons of Incorporating in Nevada

Incorporating in Nevada could help your bottom line, but it may also hurt your bottom line.
Incorporating in Nevada could help your bottom line, but it may also hurt your bottom line. (Image: Jupiterimages/Brand X Pictures/Getty Images)

In an effort to reduce taxes and increase their bottom lines, many business owners have incorporated their businesses in Nevada, even if they don't live or operate their businesses there. For some, incorporation in Nevada makes sense. For others, incorporating in Nevada only adds expense and extra paperwork, without offering any monetary or legal advantages. When considering whether or not to incorporate in Nevada, consider the needs of your business, and carefully compare Nevada's laws with your own state's laws.

Pro: Limited Liability Protection

Nevada may or may not have greater limited liability protection than your state. Under Nevada law, directors and officers of corporations are not liable for damages resulting from a breach of fiduciary duty, unless the breach involved intentional misconduct, fraud or a knowing violation of the law (Nevada Rev. State. 78.138(7).

Pro: Lower Taxes in Nevada

According to Nevada's Secretary of State website, the state doesn't have a franchise tax, corporate income tax, taxes on corporate shares or a personal income tax. If you operate a business in Nevada, these benefits can benefit to your bottom line. If you operate your business somewhere else, you still need to file taxes in that state. There is one exception to this rule, though. If you structure your business as a Nevada C-corporation, you can avoid your own state's taxes. However, you are then subject to double taxation at the federal level.

Con: Getting Audited

If you live in a state other than Nevada and operate a business in a state other than Nevada, there is a good chance you will be audited by the state you live in. States want to collect tax revenue to fund operations, and when they find a business in their state is incorporated in another state, they are likely to audit your taxes.

Con: Still Operating Under Your Own State's Laws

Even if your business is incorporated in Nevada, you still must abide by the laws governing your home state. For example, if you live and operate your business in California but have incorporated in Nevada, California business laws supersede Nevada business laws regarding your business.

Con: Expenses

If you live in Nevada and operate your business in Nevada, the cost of incorporation is standard. If you live in a state other than Nevada and decide to incorporate in Nevada, you will incur extra expenses. You will have to hire a Statement and Designation of Foreign Corporation in the state you live in, and you will also have to hire a Nevada Agent for Service of Process each year when you file your paperwork with the Secretary of State. For large corporations, these extra fees are usually not cost prohibitive, but smaller businesses may struggle with extra expenses.

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