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The decision of where to register a legal entity–such as a corporation, partnership, or LLC–affects the management and operation of such a business. For example, different states have different tax standards for registered entities, different operational requirements, and ultimately, the law effects businesses differently based on where they are registered. Indeed, legal entities are free to register wherever they prefer. Accordingly, California businesses can take advantage of certain benefits based on where they register. Please contact us today to speak to an attorney about the circumstances and characteristics of your business to decide the most advantageous state in which to register your business.
What Are the Advantages of Registering a Legal Entity in California or Nevada?
Nevada is a favorable jurisdiction where legal entities can register primarily because it does not have corporate or personal income tax liabilities. Nevada also does not have a franchise tax for legal entities. Furthermore, a corporation that is registering in Nevada enjoys an extremely strong defense against attempts to “pierce the corporate veil.” Accordingly, in the event that the corporation is involved in a lawsuit, Nevada’s corporate law makes it difficult for a claimant against the corporation to hold the individual officers responsible for personal liability. In fact, this level of protection for corporate officers stems from a California case. As such, California corporations also enjoy a similar level of protection for corporate officers. Indeed, California also provides heightened confidentiality for corporate officers–a corporation must only disclose its corporate director and resident agents, not its stockholders. Also, California provides corporations with a greater level of flexibility in its management. Other than requiring a president, secretary, and chief financial officer, California corporate law allows corporations to organize as they see fit.
What Are the Disadvantages of Registering a Legal Entity in California or Nevada?
While Nevada does have favorable tax liability for legal entities, a California business will typically not conduct much business in Nevada. Therefore, the lack of income tax may be irrelevant for corporations that register in Nevada, but conduct all their business in another state. Additionally, by conducting any business in another state, e.g., California, a Nevada corporation would still have to pay California’s franchise tax. In this case, the more important consideration becomes the jurisdiction where the corporation conducts business, not where it is registered. Then, the corporation would still have to pay income tax on the business it generates in California. Also, as long as the business remains registered in Nevada, it will need to file annual reports and establish an agent for service of process (i.e. an individual or commercial entity that accepts legal documents) in Nevada. The same is true for a Nevada corporation registered in California. In effect, a corporation that registers in one jurisdiction while conducting its business principally in another jurisdiction will face additional compliance costs to meet the requirements in both jurisdictions.
At the Law Offices of Salar Atrizadeh, we guide our clients in legal matters regarding all aspects of multi-jurisdictional business operations by using extensive knowledge and skills to create innovative solutions.