To Be or Not to Be a Nevada Corporation

Entrepreneurs often inquire about incorporating businesses in Nevada because the Nevada Secretary of State web pages and online incorporation services profess many enticing reasons to do so. Perceived benefits of avoiding state income taxes, shareholder privacy, and cheaper startup costs all sound alluring. However, if it sounds too good to be true, it usually is.

Simply stated, if a Nevada corporation will substantially conduct its business in California, it will most likely (i) be deemed a “foreign corporation” transacting repeated and successive transactions of its business in California, (ii) will be subject to many of the below discussed California corporate laws, and (iii) will be subject to California taxes, fees, registration and annual filings. In most cases, incorporating in Nevada a California enterprise will increase, not decrease, the cost of incorporating in Nevada; require registration in California as a foreign corporation; the costs of maintaining the corporation will be more expensive annually; and California income taxes will not be avoided. In the end, the company will inevitably require costly conversion (aka redomestication) into California.

The root misperceptions about Nevada incorporations are the erroneous assumption that the state of incorporation determines all taxes, fees, and required filings, and an unknown California “long arm statue” applicable to businesses substantially operating or conduct business in California.

To more thoroughly explore the common misperceptions of incorporating a California business in Nevada, minimize the misguided appeal of incorporating in Nevada, and focus entrepreneurs on more pressing issues involving the startup of a business see: “Oh where, oh where will my Corporation go? Oh where, oh where can it be? California vs. Nevada“.