Each and every month, several readers and clients ask me the following question: “Is it true that incorporating in Nevada is best?” This question is prompted by the various ads on radio and in newspapers about the “benefits” of incorporating in Nevada. It is time to put these false and misleading statements to rest!
The advertising alludes to the fact that Nevada does not have any state income taxes and that there is a certain amount of privacy afforded shareholders of a corporation incorporated in Nevada. While it is true that Nevada does not have any state income tax, this fact does not help a business that is located and operating here in California. A “foreign” corporation (which is a corporation incorporated in a state other than California) doing business in California must, by law, pay income taxes on earnings from business conducted in California. Thus, a business located and operating in California is required to file a tax return and pay taxes here in California. The only income tax benefit that a business incorporated in Nevada will receive is if it has an actual operating location in Nevada.
There are additional costs incurred by operating in California while being incorporated in Nevada. In order to maintain the Nevada corporation, the business will normally pay a fee to have an agent and maintain a “business location” in Nevada. In addition, there may be additional costs charged by the company’s accountant for filing the California tax return.
Relating to the privacy question, there is no additional privacy protection given by incorporating in Nevada, unless your company is “publicly traded.” California does not require a closely-held corporation to provide the names of shareholders in any state registration or document, therefore this information is not available to the public or creditors. A corporation is required to register (in Nevada and California) the names of the officers and directors of the corporation, which will result in a double fee if incorporated in Nevada and doing business in California.
Unless an attorney who you trust, informs you that there are other reasons to incorporate in Nevada or some other state, a business located and operating in California should be incorporated (or use some other business entity such as an LLC) in California. The cost of incorporating in California, using an attorney (not an agency) for all initial documents varies between $800.00 and $1,750.00, depending on the law firm that you use.