Must a Nevada corporation be registered in the state where the owner resides?
It is often the case that a potential purchaser of a Nevada corporation wants to know if he is required to register his company with the Secretary of State in the state where he resides. The issue does not turn so much on where the owner resides, but what the corporation does inside the residence state of the owner.
Almost every state has a statute that requires a foreign company (one formed outside of the state) to register in that state if it is doing intrastate business(business done within the state) as opposed to interstate business(business done across state lines). The process for this registration is not very complicated and also not very expensive, ranging from $50 to $200 depending on the state. The result of this registration, however, is that, upon registration, the Nevada corporation will now be subject to all of the corporate taxes, disclosure of ownership and other regulatory laws of that jurisdiction. In plain language, it means that the Nevada corporation is going to be treated as though it was formed in the state requiring the registration and the owner is going to be deprived of some or all of the benefits of forming the corporation in a non-tax state with anonymous ownership..
Although the law is rather simple, the definition of “doing business” is not so simple. Each state may have a different view of what constitutes “doing business”. As examples, some states provide that the following activities do not constitute “doing business”: (These are only examples and the list is not exhaustive):
1. Having a bank account.
2. Using independent contractors rather than employees
3. Having sales decisions made outside of the state
4. Only making passive investments within the state.
5. Income is generated from customers outside the state.
On the other hand, if the company has all of its bricks and mortar located within the state of registration; also has all of its employees there and, in addition, generates all of its income from the residents, it can pretty much be assumed that this corporation is going to have to register in the state because it is clearly “doing business” in the state..
If a potential owner of a Nevada corporation has a business that falls into the latter category and must register his corporation in another state, he now has to ask himself what the value of a Nevada corporation will have for him?
1. There may be no advantage to operating the business directly through the corporation and there may even be a disadvantage. For example, in maintaining the Nevada corporation, the owner will have to pay for the services of a registered agent which can cost $150 a year. It could be , however, that the owner operates in other states. If so, then, although he would pay income taxes on the income earned in the state of his residence, he would not be required to pay income taxes to his residence state for income earned elsewhere. In other words, were he to form the corporation in California, for example, he is required to pay income tax on all the income, wherever earned. Although this can be a complicated issue involving tax credit for payment of income tax in other states, there may still be a distinct advantage to incorporation in Nevada or Wyoming even though it may have to register in the state where it is “doing business”.
2. There may be other uses for the Nevada corporation in that the company can keep its funds in an out-of state bank; it can own the shares of a local corporation, thus providing anonymous ownership for the corporation formed in the state of registration.
The potential owner of a Nevada corporation or LLC must decide if that Nevada corporation offers the advantages that he or she seeks; whether the formation of the company in the state where the owner resides offers a better solution; or whether it is best to form two corporations (one in the home state and one in Nevada).
