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Nevada State Corporation - The #1 Reason to Incorporate in Nevada

Aug 17, 2007
It's Extremely Difficult for Anyone to Pierce Your Nevada State Corporate Veil

When you form a corporation, whether it's in Nevada, California, Texas or wherever, you must follow certain corporate formalities. Remember, a nevada state corporation can do everything you can do except act or think, so it does those things through your board of directors, officers and shareholders. If your corporation does not keep accurate records of meetings by minutes, and if the corporation commingles funds, it makes it easier for someone to pierce your corporate veil if the corporation is involved in a lawsuit.

Low capitalization is another reason why corporate veils get pierced. In some states, like California, we recommend that you capitalize your corporation with at least $1,000. If you don't, it's easier for someone to prove that you are simply the alter ego of the nevada state corporation (one and the same as the corporation), and then pierce your corporate veil! How does Nevada feel about this? Nevada is called a "thin capital state," meaning you can form a corporation in Nevada for as little as $100. Also, Nevada has a certain attitude about piercing the corporate veil, which is why major corporations domicile in Nevada. Let's explain.

The Nevada State Test - Trying to Pierce the Corporate Veil

First, in Nevada, anyone trying to sue you must pass a three-prong test. They must prove all three parts to pierce your corporate veil:
The corporation must be influenced and governed by the person asserted to be the alter ego.

There must be such unity of interest and ownership that one is inseparable from the other.

The facts must be such that adherence to the corporate fiction of a separate entity would, under the circumstances, sanction fraud or promote injustice.

The burden of proof for all three "general requirements" is on the plaintiff who is seeking to pierce the veil, and a failure to prove any of the three will result in your veil not being pierced! Essentially, Nevada says that unless they can prove fraud, your corporate veil will not be pierced. That is awesome protection.

Nevada State Corporation - Case In Point

The landmark case that proves this point is the case of Roland vs. Lepire (1983). We recommend that you keep accurate corporate records to protect your corporate veil, and make sure you have adequate capitalization as well. In Roland, the corporation had a negative net worth at the time of the trial so it was clear it was inadequately capitalized. On top of that, the corporation never held formal directors or shareholders meetings, never started or kept a corporate minute book, never paid dividends, and didn't pay salaries to the officers or directors. On the other hand, the corporation managed to secure a corporate checking account, as well as a general contractor's license and a framing contractor's license, "both in its name".

What happened? The court concluded that, "Although the evidence does show that the corporation was undercapitalized and that there was little existence separate and apart from [the two key shareholders]evidence was insufficient to support a finding that appellants were the alter ego of the corporation." The Nevada Supreme Court has made clear that unless the plaintiff acting against you is able to meet the burden of proving that "the financial setup of your corporation is only a sham and caused an injustice, " your veil is unlikely to be pierced.

The Nevada state corporation appears as an "Iron Fortress" to creditors. In fact, the corporate veil has only been pierced two times in Nevada in the last 23 years! And that was a case where the corporation was actually doing business in Nevada and had committed fraud against a Nevada resident.
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