Question Regarding The Article: Using Corporations To Hide Publicity-Shy Investors.

Question Regarding The Article: Using Corporations To Hide Publicity-Shy Investors

Q: Why not just make it a Nevada corporation? Aren't the shareholders private there? Eric J. White

Eric:

An excellent question! It is true that shareholders are not publicly listed in Nevada. That is only part of the analysis, however.

If you are living in Nevada or the corporation is actually doing business there [not just renting an address], forming a single Nevada corporation is fine. Most people, however, live in another state and do not wish to move to Nevada.

If the business owner is living in another state, they run into serious tax problems in their own state if they use a single Nevada corporation. Each state has a set of laws that dictate that if a Corporation is conducting its day-to-day business in the state, it must be registered in the state. One option for using a Nevada Corporation is simply to have the Nevada corporation file as a "foreign corporation" in the state in question, for example Texas. The problem, however, is that most states make shareholder information for corporations available to the public. This obviously defeats the initial goal of protecting the identity of the shareholders as the foreign corporation filing lists the shareholders. As such, it is better to form a second management corporation to create space between the adult entity and the investor.

In short, you cannot live in Texas, design the site, run the site, shoot content, maintain a bank account, sign contracts, market, etc., and just call yourself a Nevada corporation. For all intensive purposes, you are a Texas company.

The state tax agencies have become aggressive in investigating these situations. A number of states have extreme penalties for undertaking such a strategy. In California, the fines have been up to $10,000 a day for failing to register with the Secretary of State.

A Nevada corporation is a valuable tool to use as part of your business protection strategy. Unfortunately, many people fail to use the proper strategy and end up shooting themselves in the foot. Instead of creating security, they open themselves up to legal and tax problems.

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