When you’re forming a corporation, choosing the state of incorporation is a very important consideration. Over the past several decades, many companies reflexively decide to incorporate in Delaware. But the times are changing.
With recent developments, Nevada may be more advantageous than Delaware. Will Nevada immediately supplant Delaware? Not necessarily. But there are a few reasons why large corporations are turning to the Silver State to be its state of incorporation.
1.) Nevada offers Charging Order Protection for Corporate Shares
Nevada is unique, because it is the only state that offers the charging order protection for corporate shares. So, what is a charging order?
In short, a charging order is a lien on distributions. And this comes into play when you are sued personally. If you’re sued (say, you get into a car wreck), and you lose in court, that car wreck victim will attempt to satisfy their judgment by reaching your assets. One of which includes the shares that you hold in a corporation.
In other states, the court may order you to sell your shares to pay the car wreck victim. However, this is not the case with the charging order that Nevada corporations have. With this charging order, the only way that car wreck victim gets paid from your shares is if any distributions (or dividends) are paid to you. And if no distributions are made from the Nevada corporation, then that car wreck victim collects nothing. Attorneys on contingency fees don’t like waiting to be paid.
2.) Nevada Provides extra protection for Corporate Officers and Directors
Nevada also stands out in another way, as it provides extra protection for corporate officers and directors in a lawsuit. In many cases when a corporation is sued, the plaintiff will attempt to hold its directors and officers individually liable for any damage done to the corporation. But in order to do so, the plaintiff must prove that the directors and officers were grossly negligent. This means that their act or failure to act was extremely careless. This is the standard used in Delaware.
However, Nevada’s standard is much higher. Under the Nevada statutes, the director or officer must have actual knowledge that their alleged conduct was wrongful. This means that in order for that plaintiff to hold the directors and officers individually liable, they must prove that they had actual knowledge of their bad conduct. Unlike proving that they were extremely careless, this actual knowledge standard is a much higher bar for a plaintiff to clear. Advantage Nevada.
3.) Nevada has a favorable tax climate
Unlike many other states, Nevada has a very favorable tax climate for corporations. This is because Nevada doesn’t have a state income tax, a state corporate tax, or a state franchise tax.
4.) Many companies are already moving to Nevada
In recent months, many large corporations are attempting to move their state of incorporation to Nevada. These include Tripadvisor, Inc., as well as Elon Musk’s recently-acquired X (formerly Twitter). Given the benefits of incorporating in Nevada, other large companies are following suit.
Conclusion
As you can see, there are many reasons why Nevada’s corporate laws are becoming more favorable. And if you need help forming a Nevada corporation, we here at Corporate Direct can help you do so. You can schedule a free 15-minute consultation with one of our incorporating specialists by clicking the link here: https://corporatedirect.com/schedule/
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