Because of Nevada's pro-business attitude, Inc. Magazine
and Money Magazine have rated Nevada #1 among all
States in recent years for favorable business climates. In
the last decade, Nevada has clearly established itself as
the "Corporation Capital of the West," and has shown
significant annual growth in the number of new businesses
that incorporate there each year. And, Nevada's legal
system, while not as experienced as Delaware's, has
naturally grown to accommodate the need for establishing
legal precedents that support the state law.
Nevada offers many advantages as a corporate haven:
1. Nevada has no state corporate taxes.
2. Nevada has no franchise tax.
3. Nevada has no tax on corporate shares.
4. Nevada has no personal income tax.
5. Nevada provides total privacy of shareholders.
6. Nevada is the only state without a formal
information-sharing agreement with the IRS.
7. Nevada is the only state that allows for the issuance of
8. Nevada has minimal reporting and disclosure
9. Nevada has nominal annual fees.
10. Nevada allows for a one-man corporation.
11. Nevada has established case law that prevents easy
piercing of the corporate veil.
12. Corporate officers and directors can be protected from
any personal liability for their lawful acts on behalf of the
13. Stockholders, directors and officers need not live or
hold meetings in Nevada, or even be U.S. citizens.
14. Only the names of the officers and directors are on
public records. No other information, listings, or minutes of
meetings are filed with the State.
15. There is no minimum initial capital requirement to
16. Nevada corporations may issue stock for capital,
services, personal property, or real estate. The directors
alone may determine the value of any such transactions,
and their decision is final.
Nevada's Corporation Code has been criticized by some as
too pro-management, offering far too much flexibility in
maintaining the corporation's affairs. Critics have said that
the law in Nevada is not concerned enough about the rights
of stockholders or employees. However, since the 1991
version of the Corporation Code was adopted, Nevada has
experienced a 20% increase in the number of corporations
filed in the state.
Most of these corporations are being formed by small
companies, where the stockholders and the management
are the same. These people are concerned very little with
protecting their rights as a stockholder, since they also
manage the company and receive all of the benefits of
Nevada's liberal Code.
From the Reno Gazette-Journal, Monday, April 29, 1991:
Incorporating becomes big business for Nevada
"They come from all over: the busy streets of New York,
the snowy slopes of Colorado, the oil fields of the Yukon,
and they all want the same thing: the painless, cheap and
anonymous security of Nevada's business world.
"Scores of companies fill out a few documents, list a few
officers, pay a nominal fee and presto ) a new corporation
is born. For instance:
"A New York City cab company has established 50 Nevada
corporations -- one for every two vehicles in its 100-taxi
fleet. If the company gets sued, its liability is limited to the
value of individual properties, just two cabs, unless the
plaintiff wants to file lawsuits against 50 different
"Some ski resorts have followed the same principle, setting
up corporations for each ski lift, lodge and snack bar. A
major petroleum company set up Nevada corporations for
each of its 100 Alaska Oil wells. 'It's really the idea of
making a new basket, every time you have an egg you
want to insulate,' said one Nevada incorporation expert.
"Several entertainers have also started their own
corporations. Rock stars Madonna, the Artist Formerly
Known as Prince, Michael Jackson and Paul Simon all
reportedly have Nevada corporations, as do Chevy Chase
and Rodney Dangerfield. Some have their big-money
salaries paid to accounts in Nevada, where there is no
income tax or corporate tax, and the entertainers draw a
salary from the corporation. "They buy boats, cars and take
trips to Europe and everything," said Nevada businessman
Brian Foote, who helps out-of-staters set up Nevada
corporations. "They have the corporation buy for them."
"All of this is made possible because Nevada lawmakers
drafted its liberal corporation laws over the past several
decades, said Cyndy Woodgate, state deputy secretary for
"Officials didn't want to be hard-nosed about business
coming to Nevada, Woodgate said. "And not being
restricted here, they're able to come here and do business.
We like that fact."
"There are several benefits of having a Nevada corporation.
These include low filing fees, minimal information
requirements, and no standard corporate tax. Most other
states, including California, have a tax.
"To make matters even better, Nevada is the only state
without a reciprocal agreement with the IRS to exchange
tax returns. This is especially attractive to some
corporations or individuals who want to legally protect their
"With all these advantages, it's sometimes feasible for a
single person or company to set up several Nevada
corporations. The same thing would be a paperwork
nightmare in California, where basic individual filing fees are
up to or more.
"The liberal laws have spawned their own growth industry:
businesses that specialize in helping other businesses set
up corporations. And business is booming, in part because
it's getting more complicated and costly to do business in
"At least for now, Nevada remains the second most popular
state for incorporating on a per capita basis. The leader is
Delaware, but local corporation makers aren't impressed:
Nevada, they say, has several benefits Delaware doesn't
have, like privacy, no franchise taxes and other benefits."
"The number of lawyers confounds all belief in the land of
the fee and the home of the brief." - Leon Frielich
There is a national trend developing where people are
steadfastly refusing to serve on the board of directors of
corporations because of their exposure to stockholders and
the public. Gone are the days in which someone tries to
embellish their resume by listing all of the corporations for
which they serve as a director or vice-president. People are
slowly realizing the liability exposure that they have in
In 1987, the Nevada Legislature passed a revolutionary law
that allows corporations to place provisions in their articles
of incorporation that eliminates the personal liability of
officers and directors to the stockholders of Nevada
corporations. Delaware and a few other states soon
adopted lesser versions of Nevada's law, but Nevada's
remains among the most thorough and comprehensive in
Contained in the Nevada Revised Statutes (78.037), the law
in part reads as follows:
"The articles of incorporation may also contain:
1. A provision eliminating or limiting the personal liability of
a director or officer to the corporation or its stockholders for
damages for breach of fiduciary duty as a director or officer,
but such provision must not eliminate or limit the liability of
a director or officer for:
(a) Acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law"
In Nevada, the officers and directors of the corporation are
the only people listed on public records, so they have the
only real exposure to the outside world. As stated above,
stockholders can be indemnified as well, although that is
secondary protection to the fact that no one can find you
on public records in the first place. How can somebody sue
you - or at least collect against you - if they can't find you?
Additionally, Nevada's Corporation Code allows for the
indemnification of all officers, directors, employees,
stockholders, or agents of a corporation for all actions that
they take on behalf of the corporation that they had
reasonable cause to believe was legal. This indemnification
can include any civil, criminal and administrative action.
(See NRS 78.751.) These two laws can provide
comprehensive protection for the officers and directors of
Nevada corporations as long as they act prudently in their
In product liability cases, the damages are categorized as
one of two types. The first type is referred to as
"compensatory," which are intended to compensate the
injured for some loss, which can include economic (such
as lost income, medical bills, etc.) or noneconomic (for
example, pain and suffering).The second type of damages
are called "exemplary," also known as "punitive."
Exemplary damages are imposed to punish the wrongdoer
for conduct which by clear and convincing proof is shown to
involve oppression, fraud, or malice, either express or
implied. These damages are designed as a deterrence to
Nevada has joined a group of states that have enacted tort
reform legislation in response to the increased cost of
doing business resulting from potential liability. The goal of
tort reform is to reduce the exposure of businesses and
their insurers. The key features of Nevada's legislation are
provisions which limit exemplary damages and abolish joint
and several liability except in certain cases.
Before the tort reform legislation, it was common for courts
to award exemplary damages three to five times greater
than the compensatory damages. Nevada statute now
limits exemplary damages to an amount no greater than
,000 when the amount of compensatory damages is less
than ,000. These limitations do not apply to situations
involving insurer bad faith, the release of toxic substances,
or product liability.
The other significant change in Nevada law is the
abolishment of joint and several liability. Joint and several
liability means that if a judgment is entered against several
defendants, they are each equally liable for the full amount
of the judgment, without regard to their relative fault in
causing the damages. Nevada now requires the court to
assign a percentage of fault to each defendant, from zero to
one hundred with the total equal to 100 percent. Each
defendant found liable is required to pay a share of the total
judgment no greater than his/her percentage of fault.
"Anyone may arrange his affairs that his taxes shall be as
low as possible; he is not bound to choose that pattern
which will best pay the Treasury; there is not even a
patriotic duty to increase one's taxes." - Learned Hand, in
Helvering v. Gregory.
All US corporations are subject to federal income tax
liability. Although there are many strategies involving the
corporation that may reduce the federal tax liability, the
state of incorporation is not a direct factor in reducing
federal taxes. However, some strategies that will reduce
federal income taxes for corporations may require the use
of a corporation from a specific jurisdiction, such as
Nevada, due to several factors that are inherent in Nevada
State Corporate Income Tax
California has a state corporate tax rate of 9.3 percent, with
a minimum tax of per year. Arizona has a tax of 9.3
percent on all taxable income over ,000. New York's tax
rate is 9 percent, (10 percent on unrelated income) with a
minimum required tax of per year, in addition to taxes
levied by local jurisdictions (New York City imposes an
8.85% corporate tax). Even Delaware has a corporate tax
of 8.7 percent and a minimum per year franchise tax.
The difference in tax liability becomes immediately
apparent when looking at state corporate tax rates. The
rate of tax among the forty-five states that have state
corporate income tax, ranges from 1 percent (Arkansas'
corporate tax on the first ,000 of income) to 12.25 percent
(Pennsylvania's corporate tax). Many states have additional
surtaxes, and allow local governments to assess their own
corporate taxes on top of that.
Nevada is one of only four states with no corporate income
tax. Additionally, Nevada has no franchise tax, no taxes on
corporate shares, and no succession tax. This type of tax
structure is made possible in Nevada by a state economy
centered in three major industries, namely; (1) gaming, (2)
tourism, and (3) mining.
The revenue generated by these industries has historically
paid for a substantial portion of Nevada's budget needs.
Any visitor to the Las Vegas Strip can testify that Nevada's
entertainment industry has poured billions of dollars into
protecting it's title as the entertainment capital of the world.
Besides the gaming taxes generated on the casino floor,
the millions of visitors add substantially to state coffers
each year in sales revenue from purchases made during
So, by incorporating in Nevada instead of California and
with careful structuring that distinctly separates the Nevada
source income from the California source income, you can
create an entity that has it's tax domicile in Nevada. This
could save the business ,300 in state corporate income
taxes on every ,000 of taxable income. What's more, your
corporate structure would be in complete compliance, and
Remember, there is a difference between "tax avoidance,"
which is perfectly legal, and "tax evasion," which is very
illegal. Tax avoidance is avoiding situations which are
taxed, while tax evasion is failing to pay taxes that are due.
And just as important, Nevada has been fiscally
conservative throughout its history. Nevadans have never
had high regard for taxes. So much so, that several years
ago the Nevada legislature approved a measure that made
a state personal income tax unconstitutional.
Nevada's Business License Tax
The best example I know that demonstrates the difference
between the two is in consideration of a toll bridge.
Crossing the toll bridge without paying the toll would be
evasion, while choosing another route, even if it adds a few
miles to the trip, is simply avoidance. There is nothing
illegal or immoral about it.
The one business-related tax that you should be aware of
may not even apply to your Nevada corporation. Effective
July 1, 1991, the tax is often called the Nevada Business
License Tax, which is based on the average number of
employees the company has on the payroll during each
quarter of the year. The tax is paid quarterly by every
person, corporation, partnership, or proprietorship that
conducts an activity for profit in Nevada. The only exempt
companies are nonprofit organizations and government
Only businesses that have employees working in Nevada
are subject to the tax. If you don't have employees, the tax
does not apply. Independent contractors are not considered
employees of the company, and are liable for their own tax
under the law.
The procedure for administrating and collecting the tax is
as follows: an application is mailed to all new businesses
by the Nevada Department of Taxation within weeks of
incorporating or securing local business licenses. The
original application must be accompanied by a .00 filing
fee, and a current list of corporate officers and directors. All
new businesses must return the application, if for no other
reason than to say that the company had no employees.
The tax amounts to per employee per year. To dissuade
the critics of this tax, who properly complain that it
produces a negative reward for hiring new employees, the
tax is now based on the number of hours worked by
employees, instead of the number of employees hired. The
total hours worked are then divided by the number of hours
the state thinks a full-time employee should work each
quarter, and the result is the number of
employee-equivalents that the business has.
"The makers of our Constitution undertook to secure
conditions favorable to the pursuit of happiness. They
recognized the significance of man's spiritual nature, of his
feelings and of his intellect. They knew that only a part of
the pain, pleasure and satisfactions of life are to be found in
material things. They sought to protect Americans in their
beliefs, their thoughts, their emotions and their sensations.
They conferred, as against the Government, the right to be
let alone - the most comprehensive of rights and the right
most valued by civilized man." - Louis Brandeis, in
Olmstead v. United States.
For many people, privacy is the primary issue in their
financial life. It seems that in our society, so bent as it is
upon litigation and lawsuit, the less people know about
your assets, the better off you are. It is no coincidence that
people without significant assets do not get sued nearly as
often as those who are perceived as having "deep pockets."
Individuals with any assets at all should anticipate the
possibility of being sued during their lifetime. This is the
very reason many people incorporate their business
From the Reno Gazette Journal, Monday, April 29, 1991:
Silver State's regulations allow for 'hidden' firms
"Taking advantage of a new Nevada law, some Silver State
corporations now are able to withhold from the public the
location of their principal offices.
"But a top official in Nevada's Secretary of State's office
said she believes the new law isn't causing problems,
although the number of hidden corporate sites is unknown.
"Under the previous regulation, corporate papers available
to the public were required to list the location of a
corporation's principal office. That's not required under the
new rule, which mandates only that a corporation list the
address of its Nevada resident agent.
"The updated law requires that the resident agent keep a
record of the corporation's principal office address. But
there's no requirement that a resident agent reveal a
corporate office site, except under court order.
"However, corporate directors must list their names and
addresses - information that sometimes can be used as a
clue to the area a principal office is located, said Cyndy
Woodgate, deputy secretary of state.
"Nevada's corporation law remains liberal, and finding a
corporation "is no easier than it was before," she said.
That's partly because a Nevada corporation doesn't
necessarily have to conduct business, and its address can
be listed as a post office box.
"The rule changes were approved by the 1991 Legislature."
Frivolous lawsuits are expected and planned for by
companies across the country. Because it is widely
recognized that insurance companies regularly settle
claims - even frivolous and unsubstantiated claims - rather
than deal with the expense of, or risk the decision of the
court, we have become a suit-happy society.
To protect your assets from this disturbing trend, you need
a specific plan of action that isolates your assets from
yourself. If someone has no reason to believe that you have
access to a million dollars, it is not likely that someone
would pursue a million-dollar judgment against you. If you
keep your assets private, you will greatly reduce your
chances of being sued. Certainly no attorney would work
on a contingency against you unless they see some way of
getting paid. Suing poor people has never made an attorney
The Nevada corporation offers many ways to protect your
privacy as a stockholder. To appreciate how this is
possible, it is necessary to understand that there are
essentially five ways to identify the stockholders of a
1. Call the Secretary of State's office (or it's equivalent)
where the corporation was formed. In some states, the
Secretary of State requires that a list of stockholders,
including their capital contribution and the value of their
stock be on file. Often, this information is available over the
2.Obtain a copy of the corporation's tax return in that state.
Every state that has a corporate income tax or franchise
tax requires that the return be filed on a state-approved
form. It is common for the state income tax return to
require a list of stockholders, (particularly when that state
also has a personal income tax.) This is difficult to get over
the phone, but can be accessed, depending upon the
state's policy, either through the mail to any individual who
asks, or to anyone who has a subpoena for the record.
3.The corporation's resident agent in that state is required
to have information on file regarding the ownership of stock.
Usually, this means that the corporation is required to
provide the resident agent with a copy of the stock ledger
for file. This is not available to just anyone, but a subpoena
will have immediate access to it.
4.The corporation itself maintains the original of the stock
ledger. This ledger contains all the information regarding
the amount, type and value of stock owned by each
stockholder. A subpoena can get to any corporate record.
5.The corporate officers or directors can be deposed under
oath about their direct knowledge of the ownership of the
It can be difficult or impossible to find out who the
stockholders are of a Nevada corporation using any of the
methods described above. Let's discuss each of these
First, the only filing required of a Nevada corporation to the
Secretary of State is an annual list of officers and directors.
This list represents the only information that the Secretary
of State will have regarding the ownership and management
of the corporation. This list is due within 60 days of
incorporation, and annually after that.
Although there is room on this list for many names, only
five lines need to be filled out. The required offices that the
Secretary of State must have on file include the president,
the secretary, the treasurer, at least one director, and
resident agent. The most significant thing about that is the
fact that one person may serve in all of those capacities,
and is not required to be a stockholder.
If someone calls the Secretary of State in Nevada and
requests information on a corporation, they will learn
several things. They will learn whether or not the
corporation is in good standing with the state. They will
learn the names of the president, secretary, treasurer, and
director (as well as any additional officers which may have
been reported, such as vice-president and/or additional
directors). They may learn that all of those positions are
filled by the same individual, which usually suggests a
one-man corporation, or by several different individuals.
They may discover that the officers and directors appear to
have residency in the US, or that conversely, they appear
to be citizens of a foreign country. They have also
discovered who the resident agent is, but we'll get to that
What they could not learn is significant:
The Secretary of State could not reveal information
regarding whom the stockholders are, or even how many
exist, or how much stock is issued;
If the list of officers and directors was filed, for instance, on
October 1st, it only represents the officers and directors of
the corporation on that date. It is theoretically possible that
the corporation had a meeting on October 2nd, where new
officers and directors were elected. The new officers and
directors would not be on public record for a year, if then.
The Secretary of State could not tell what assets the
corporation owned, how much capitalization exists, or what
their value was, and; The Secretary of State could not say
if the officers and directors had changed since the last list
was filed, since filing the list is only required once a year.
The corporation could conceivably call another meeting the
following September and put the original officers and
directors back into office in time for the next annual filing.
So, you have no guarantee that the names you found have
any relevance to the current situation.
Because Nevada has no corporate income tax, or the
inherent bureaucracy that such a tax creates, there are no
state corporate tax returns to look at. The only document
the Department of Taxation has, is a filing form for the
Nevada Business License Tax, which is not immediately
available as a public record, and if it were it would only
disclose the number of hours worked by employees of the
Let's assume the resident agent for the corporate records
has been subpoenaed for the records it has in its
possession relating to this particular corporation. The
Nevada resident agent is not required to have a copy of the
actual stock ledger on file as is required in most states,
instead it is merely required to have a statement that
provides the name and address of the person who has the
stock ledger in their possession. The actual stock ledger
could be in Sri Lanka, Swaziland, or Senegal.
The law does not require the stock ledger to be in Nevada
at any time. If the corporation so desired, it could force a
potential litigant to spend a lot of time and money to pursue
that information. You would have to be asking yourself how
much trouble this is all worth.
The corporate secretary is another potential source of
stockholder information. This person has no legal obligation
to you to reveal any information at all about the
stockholders of the corporation. In fact, the corporate
secretary is not required, or even allowed, to provide that
information even to another shareholder of the company
unless the shareholder controls enough voting power to
force the issue.
NRS 78.257 provides that any stockholder who owns at
least 15% of the issued shares of a corporation has a right
to inspect all books and records, but must bear the costs
of such an inspection. Minority shareholders with less than
15% ownership do not enjoy this right.
The right for judgment creditors to access a corporation's
stock ledger was removed by the Legislature in 1993.
In essence, a potential judgment creditor does not seem to
have the ability to access corporate records or documents
to suit his interest, unless he is a stockholder, or a criminal
investigation warrants it. If a potential creditor attempts to
obtain and use these corporate records for any interest
other than a shareholder's, he could face civil penalties.
Beyond those limitations, ultimately the stock of the
Nevada corporation may have been issued as bearer
shares. This means that they may be issued and recorded
on the stock ledger as having been written to the "bearer"
of the certificate. Perhaps the shares were first issued to
the trustee of a voting trust, or care of an attorney, who
exercises attorney/client privilege. In any event, the
corporate secretary may have no direct knowledge
regarding who currently possesses those shares.
Nevada is the only state that allows corporations to issue
stock to the "bearer," which is very much like writing a
check to "cash." The person who controls the bearer
certificates, or has the shares in their possession,
technically has the power to redeem those shares as the
beneficial owner. As a negotiable instrument, it may be
difficult to determine how many times the stock has
changed hands since it was first issued.
The use of "bearer shares" to own and control a Nevada
corporation has been touted in seminars, newspaper
advertising, and promotional brochures of many
Nevada-based incorporating companies. Bearer shares are
generally considered to be an attractive solution for
individuals who desire to own or control assets or business
activities, while maintaining a high degree of financial
privacy. It is true that privacy can be accomplished through
bearer share ownership, however there are many issues
which are broadly misunderstood regarding the use of
HOW BEARER SHARES ARE ALLOWED
Most states base their corporate law extensively on the
Revised Model Business Corporation Act as developed by
the Committee on Corporate Laws of the American Bar
Association. It should surprise no one, then, that there are
amazing similarities in the Corporation Codes of the various
states. However, because the Model Act has been refined
and modified over time, and because of the stubborn
independence of the various states not to conform entirely
to the Model Act, each state has developed its own
eccentricities that set it apart from the others.
In Nevada's case, one area in which it separates its
Corporation Code from the Model Act is in the information
required on the stock certificate of a corporation. Under the
Model Act, for instance, a stock certificate is required to
contain: 1) the name of the issuing corporation and the
state under which it is organized; 2) the name of the person
to whom the stock is issued; and 3) the number and class
of shares and the designation of the series, if any, the
The Model Act does not contemplate or allow the use of
shares issued to bearer.
The Nevada Revised Statutes (NRS) reads differently, and
by omission of the language of the Model Act, creates an
opportunity to issue shares of a Nevada corporation to "The
Bearer". NRS 78.235 (1) reads in part as follows: "every
stockholder is entitled to have a certificate, signed by
officers or agents designated by the corporation for the
purpose, certifying the number of shares owned by him in
In other words Nevada law specifically only requires two
things: 1) the name of the corporation, and; 2) the number
of shares represented by the certificate. According to an
attorney with the Nevada Attorney General's office assigned
to the Nevada Secretary of State's office, Nevada is the
only state with this language. Since the name of the
shareholder is not specifically required on the certificate,
there has been broad use and acceptance of bearer shares
in the State of Nevada for many years.
Even so, officials with Nevada agencies such as the
Attorney General's office, the Securities Division and
Corporation Division of the Secretary of State's office are
reluctant to take an official position one way or the other on
bearer shares. There are no Attorney General's Opinions on
this issue, and surprisingly, there is absolutely no case law
on the subject. The most positive affirmation I have received
on the viability of bearer shares came from Mr. John
Cunningham, an attorney with the Securities Division who
confirmed that bearer shares could be used as long as the
corporation was not required to qualify for a public offering
WHY BEARER SHARES ARE USED
There are two clear reasons why a corporation would issue
bearer shares: First, as a tool to achieve total privacy in
corporate ownership due to the fact that true ownership is
extremely difficult to determine, and; Second, as a vehicle
to provide for convenient transfer of ownership interests.
Let's discuss these individually.
There are only two tangible sources of information on
ownership of a Nevada corporation: the stock certificate,
and; the stock ledger. The stock ledger has its own legal
requirements under Nevada law. The ledger must contain,
in alphabetical order, the names of the stockholders, their
residence address, and the number of shares owned by
each. This list must be revised annually, and would be a
significant document for a legal adversary to obtain.
However, Nevada law provides a statutory barrier to getting
and using information on the stock ledger that includes its
own penalties. As discussed above, NRS 78.257 provides
that any stockholder who owns at least 15% of the issued
shares of a corporation has a right to inspect all books and
records upon five days notice, but must bear the costs of
such an inspection. But subsection 3 of that statute states
"Any stockholder or other person exercising (these rights)
who uses or attempts to use information, documents,
records or other data obtained from the corporation, for any
purpose not related to the stockholder's interest in the
corporation as a stockholder, is guilty of a gross
misdemeanor." (Emphasis added.)
In other words, the penalty for using corporate information
for any other purpose than to have a stockholder defend or
demonstrate his or her interest in the corporation is up to
one year in the county jail and up to a ,000.00 fine. Clearly,
a non-shareholder in a Nevada corporation has no legal
right or authority whatsoever to view the stock ledger.
(However, the burden of proof, in the cases of Roney v.
Buckland, 4 Nev 557 (1868) and Wayman v. Torreyson, 4
Nev 619 (1868), falls on the corporation to prove improper
motivation for such a request.
With those protections in place, the only other tangible
source of ownership information is found on the stock
certificate itself. A bearer certificate, even if obtained, could
only be considered circumstantial.
Individuals who attempt to use bearer shares should
exercise extreme caution to avoid the potential for civil or
criminal liability. When in the discovery phase of litigation,
there is no guarantee that the court will not require full
disclosure of stock ownership. In a criminal case, a grand
jury may do likewise, although materials submitted to a
grand jury are confidential unless presented in support of a
Examples of individuals who might use bearer shares
Persons contractually obliged not to compete in a
particular business. Such persons may establish a Nevada
corporation issuing bearer shares to enter into that market,
recognizing the possibility of civil litigation if their employer
or former employer learns of their indirect involvement.
Persons engaged in contested divorce or family support
proceedings. Once a court of proper jurisdiction establishes
alimony or child support requirements, the person making
such payments might wish to establish a Nevada
corporation issuing bearer shares to avoid addition support
appeals from future income. Persons who wish to maintain
a low profile in their business dealings. Many wealthy and
prominent people want to avoid having their names
associated with high-profile investments. Bearer shares are
an ideal form of ownership for such individuals Persons who
wish (or may need) to remain anonymous to close a
business deal. When personal relationships could
otherwise jeopardize profitable business dealings, it may
be possible to use a corporation with bearer ownership to
close the deal. I know of a wealthy dentist who wanted to
buy a condominium complex he was living in.
Unfortunately, he had developed a poor relationship with
several of the other owners in the complex, and disliked
him so much they refused to sell. Along came a Nevada
corporation, which made an offer slightly less than the
dentist's and the deal closed quickly. The more the dentist
complained about the "low-ball" offer, the more the others
wanted to sell.
Transfer of Ownership
Most of the confusion surrounding bearer shares has to
deal with the issue of transfer of ownership. A bearer
instrument is negotiated differently than an instrument
made payable to order. If an instrument is made payable to
the order of John Doe, it is negotiated by delivery with any
necessary endorsement. If an instrument is made payable
to bearer, it is negotiated by delivery. It is commonly
believed that bearer shares allow you to transfer ownership
of a Nevada corporation in complete privacy, without any
adverse impact. Three important facts must be established
on this topic:
1. A stock certificate is not stock itself. The stockholder
may own the stock with or without the stock certificate.
The Nevada Attorney General has published a formal
opinion on this subject (AGO38). The certificate is merely a
piece of paper that indicates ownership. Because Nevada
does not require corporations to issue certificates at all, it
would be foolish to assume that possession of the
certificate equals ownership of the shares.
2. The Nevada Revised Statutes (78.240) specifically state
that shares of stock are personal property. So, all rules,
regulations, and applicable taxes that would otherwise
apply to transfers of personal property will also apply to
transfers of bearer shares. Bearer share certificates, like
personal property, may be stolen, borrowed, obtained under
false pretenses, lost, copied, sold, inherited, bought, willed,
etc. My car is personal property also. On occasion I have
lent my car to a friend. Simply because he was in
possession of my car during that time did not mean he was
3. Nevada case law requires a transfer of stock to be
registered upon the corporation's books before the transfer
is valid against the corporation. This is done to protect
corporate officers in determining ownership of and the right
to vote corporate shares. (61 Nev. 431, 132 P.2d 605.
So, can bearer shares be used to transfer ownership of a
Nevada corporation? Absolutely. But the new owner must
register his ownership with the corporation before the
corporation can grant ownership rights, including dividends.
And, the transfer may trigger other things, like federal gift
and estate or capital gains taxes.
This issue is widely misunderstood. I recall attending a
seminar on corporate strategies in Carson City several
years ago where the founder of a large incorporating
company suggested that he could legally avoid disclosing
his ownership of corporate stock, even if he were called to
testify in court under oath. His solution was to have the
stock issued to bearer, and give the stock certificate to
someone seated next to him immediately prior to being
called to the stand. Then, he said, he could testify that he
did not legally own the stock, and upon returning to his
seat receive the certificate back.
Over one hundred people were in attendance at that
seminar, and heard an "expert" in the field describe how to
perjure oneself. Perhaps he did not know the three
important rules outlined above. I should not be surprised,
because none of the real experts contacted by my office in
preparation for this article could offer anything more than a
personal opinion on how bearer shares are handled.
The fact that there is so little published or known on the
issue of bearer shares could be interpreted as unsettling
evidence that we are wandering in the "great unknown". But
keep in mind that there is no statute that disallows its use,
and no case law that invalidates it.
Recently, I called six prominent Nevada attorneys,
including the head of the business law section of the
Nevada State Bar, with specialties ranging from business
law and contracts, to litigation and bankruptcy, and asked
them what they could tell me about bearer shares. No one
admitted any knowledge of bearer shares, besides the
confirmation that they were used. Three attorneys in the
Nevada Attorney General's office claimed only a passing
acquaintance with bearer shares. The head of the
Securities Division and three other administrators in the
Secretary of State's office could offer us nothing.
HOW TO ISSUE BEARER SHARES
If a corporation chooses to issue bearer shares, I believe
the following formula can be effective:
Step One. Hire someone who understands the
need for strategic planning. If the attorney can form the
corporation in Nevada directly, let him do it. If an
incorporating company/resident agency must be used, let
the attorney make all necessary arrangements and
communications. NBFR can offer such help!
Step Two. Hire nominee officers and
directors who have no personal contact with the
shareholders, but receive all instructions through the
attorney. This way the testimony of officers and directors
relative to their personal knowledge of corporate ownership
Step Three. In the organizational meeting of the
corporation, the nominee officers and directors issue
stocks to "bearer certificate" in increments provided in
instructions from the attorney. In the stock ledger, the
transaction is recorded with the stock being issued "in care
of" the attorney.
Step Four. The stock certificates and stock ledger are
forwarded to the office of the attorney. The certificates are
held in file in the attorney's office. The stock ledger may
also be held in the attorney's office, or may be transferred
to any location in the world. The NBFR provides the
corporation's Resident Agent with the name and mailing
address of the individual who holds and maintains the stock
Step Five. All instructions from the shareholders to the
corporate officersand directors are communicated by the
attorney. All communications between the shareholders
and the attorney represent privileged information.
As you can see, if it is total financial privacy you are after,
Nevada is the only state to consider for incorporating. If you
know what the law allows you to do, and how to structure
your affairs, it can be virtually impossible to uncover the
ownership in a Nevada corporation.
As a defense against revealing corporate ownership in civil
litigation, this can be a very effective strategy.
Nevertheless, it may not be absolutely bullet-proof. When a
civil case is in the discovery phase there is no guarantee
that the court will not require the attorney to provide
information over his objections. It is not as likely that this
information would be allowed in the trial itself, but you may
be defeated in your attempt to preserve absolute privacy.
On the other hand, I asked a partner in a prominent
Southern California law firm that frequently utilizes the
strategy outlined above concerning their experience in
handling information requests for corporate ownership.
"Some lawyers don't know what they are doing and simply
comply with every request," I was told, "but we simply
object on basis of privileged information and attorney/client
work product, and we've never been forced to produce
Information Sharing - the IRS
From the Reno Gazette-Journal, April 29, 1991:
Miller closes records to IRS
"Hands off: Governor says federal agency can't use state
computers to find tax cheats.
"Gov. Bob Miller isn't going to let the IRS use state
computers to track tax-delinquent Nevadans.
"Miller said Tuesday that he refused to open up
employment, motor vehicle and other records to the IRS
because there is too great a potential for abuse of peoples
right to privacy.
"He gave examples of IRS undercover operations into Las
Vegas bookmaking and a Reno-area crackdown on
reporting casino dealers tip earnings.
"'The IRS, to date, hasn't treated us the same way its
treated residents of other states,' Miller said.
"Millers announcement during a Las Vegas news
conference came a week after the IRS proposal surfaced.
Since then, Millers Carson office has received about 70
phone calls from irate people.
"'None of them was in favor of agreeing with the IRS,' said
spokesman Mike Campbell.
"In Washington D.C., Sen. Harry Reid, D-Nev., was
pleased. 'Gov. Millers decision was the right one,' Reid
said, 'It puts the people of the state first, rather than the
"Reid and Sen. Richard Bryan and Rep. James Bilbray,
both D-Nev., still await word on a meeting they've requested
this week with the IRS commissioner on IRS activities in
"Miller's order directed Perry Comeaux, director of the state
Department of Taxation, to notify the IRS office in southern
Nevada that state records will not be shared.
"'I told them we weren't going to do anything to expand any
cooperative effort with the Internal Revenue Service at this
time,' Comeaux said.
Nevada has repeatedly denied the access of the Internal
Revenue Service to these records, and is the only state
that does not comply with IRS requests for information. As
recently as July of 1991, Nevada's Governor ordered the
directors of the state Department of Taxation and other
agencies to seal state records from the Internal Revenue
We live in the age of the electronic superhighway.
Information about each of us is bought and sold every day
by list brokers, advertising agencies, demographers, and
statisticians. Computer links between government agencies
make entire databases available for convenient
cross-checking of vital data. This is an alarming trend.
Those who value their privacy should know of the following
aspects of Nevada corporations.
Every state in the United States, with the singular
exception of Nevada, has an information sharing agreement
with the Internal Revenue Service. California residents, for
instance, who file either individual or corporate state
income tax returns, will have their financial information
checked against their federal return without their
knowledge. States have agreed to this, for the most part,
because the sharing agreements allow the states to have
access to IRS records to verify state personal and
business tax returns.
Information sharing goes far beyond tax returns. The
Internal Revenue Service also has agreements to access
any of the individual unemployment records, welfare and
social services records, workman's compensation records,
driver's registration or motor vehicle registration records of
the other states.
Information Sharing - Service Bureaus
There are a large number of companies, such as Dunn &
Bradstreet, which maintain computer links with the various
governmental offices across the country in order to access
and sell commercially information on companies contained
in each state's database. All of the information that each
Secretary of State collects is readily accessible through
this channel, including the officers, directors, and
stockholders, if the state records provide it - complete with
Also available in some instances is detailed information on
company revenues and net worth. The interest these
companies have in this information is, of course, to provide
targeted mailing lists to anyone who is willing to pay for it.
Nevada offers a computer link as well, but the only
information it can provide is that which the Secretary of
State already collects - and we have already discussed
how limited that is. The names of stockholders are not
available from the Secretary of State of Nevada, because
the office does not collect that information. Neither do they
collect financial information on Nevada corporations.
MANAGEMENT & CONTROL ISSUES
Nevada allows corporations a great deal of flexibility in
organizing its ownership interests to fit the needs of that
particular business. The Nevada corporation may issue
different classes of capital stock, and assign different
series within each class. The owners of any one of the
classes or series of stock may be assigned different rights
There may be several classes of common stock and
several classes of preferred stock, each with specific rights
described in the articles of incorporation. The preferred
stock is differentiated from common stock by the fact that
it has the first right to receive a distribution upon the
liquidation of the corporation. When several classes of
preferred stock are present, they may be ranked in order of
If the articles of incorporation permit, the board of directors
may divide a class of preferred stock, without the approval
of the stockholders, into a series with it's own assigned
rights. The effect of this is that the board of directors can
tailor series of shares to be issued in a special
circumstance without the costs and delays of conducting a
special meeting of the stockholders to authorize a new
class of stock. The more stockholders a corporation has,
the more this convenience is appreciated.
Minimum Capital Requirement.
Nevada Corporation Code does not place any requirement
that any minimum amount be invested in a corporation. If,
however, the corporation loans out a disproportionate
amount of its funds, the IRS may reclassify the loans as
stock purchases by determining that the corporation is
Shareholder Rights to Privacy.
Concerning the rights of a minority shareholder to inspect
books and records, the Nevada Revised Statutes [78.257]
provides that any shareholder who owns at least 15% of the
issued stock of a corporation has a right to inspect all
books and records, but must bear the costs of such an
inspection. It goes on further to state:
"Any stockholder or other person, exercising (these rights)
who uses or attempts to us information, documents,
records or other data obtained form the corporation, for any
purpose not related to the stockholder's interest, in the
corporation as a stockholder, is guilty of a gross
misdemeanor." (emphasis added)
The following points are made:
1. If a stockholder holding less than 15% of the issued
stock is denied the right of inspection, then certainly third
parties can be denied inspection of corporate records,
unless the courts grant access to the records under
2. Clearly the statutory intent of this access is for the
interest of the shareholders, not for any third party. Anyone
who obtains information from the corporation books and
records for "any purpose not related to the stockholder's
interest" commits a crime. That is rather good protection.
Approval required on sale of assets.
Nevada Corporation Code requires that the shareholders
approve the sale of all of the assets of the corporation.
Approval takes a majority of the vote of shareholders that
have voting rights, unless the articles of incorporation
require a larger portion of the outstanding shares. In the
dissolution of the corporation, any proceeds not required to
pay existing debt is distributed to shareholders, and their
shares are then canceled.
THE NEVADA SECRETARY OF STATE'S OFFICE
This section will describe the process of incorporating in
Nevada, as well as providing you with a general background
on the variety of services and associated fees for the other
services provided by the Corporation Division of the
Secretary of State's office.
Name Availability & Reservation
The first step in forming a corporation is in selecting a
name for the corporation. The name you choose should be
an asset to the company, since most of your advertising
and public relations will likely revolve around it. It should tell
people what the company does, should be consistent with
the image you want to convey, and should be easy to
remember and pronounce.
You couldn't incorporate a restaurant as McDonnals
Hamburgers, Inc., since that would be unfair to the original
McDonalds. This restriction is intended to protect the rights
to corporate names, protect the public from fraud and
deception, and prevent unnecessary litigation.
The Secretary of State's office can tell you whether or not
the name you have selected is available for use. Nevada's
Corporation Code requires that the name of a corporation
cannot be "deceptively similar" to the name of any other
corporation or limited partnership authorized to conduct
business in the state.
Under Nevada law, the similarity of the corporate names
"Peoples Furniture Exchange, Inc." and "Peoples Furniture
Company, Inc." is not enough for the Secretary of State to
refuse to file the second corporation (Nevada Attorney
General's Opinion A-52, 2-15-1940). The two corporations
must be given names that distinguish them from any other
company. If a name is determined to be too similar to that
of another corporation, the Secretary of State will only
agree to file that corporation if a written consent to the use
of that name by the other company accompanies the
articles of incorporation. The Secretary of State has
complete discretion in deciding whether such a similarity
exists, and his/her decision may only be reviewed in court.
Corporations cannot gain the right to exclusive use of
geographical words in corporate names, unless the words
themselves have acquired a meaning in the mind of the
public associated with the business of the corporation.
(Attorney General's Opinion 50, 4-26-1951) So, Nevaco
Trading Corporation would be considered a valid name,
even though Nevada Trading Corporation already exists, but
Trading Corporation and Trading Corporation of Nevada are
In order to show that the company is a corporation, a
number of designations may be included in the name; e.g.,
Corporation, Corp., Incorporated, Inc., Limited, Ltd., etc.
These designations are not required to be part of the name
of the corporation unless without the designation the name
would sound like the name of a natural person. For
example, a corporation cannot be called simply "John
Doe," but can be called "John Doe, Inc."
The use of the specified designations should be strongly
encouraged. In fairness to others who may conduct
business with the corporation, when a designation is used
by the company, the public is aware of the limitation on the
liability of the individuals who may represent the
There are also words that must have prior clearance from
other state agencies before they can be used to name your
corporation. Among these words are:
Accident, Appraisers, Assurance, Banco, Banking,
Bonding, Casualty, College, Engineer, Engineering,
Financial, Fire, Gaming, Guarantee, Guaranty, Health,
Indemnity Insurance, Investment Investor, Liability, Life,
Loan, Mutual, Protection, Purchasing Group, Realtor,
Reassurance, Reinsurance, Risk, Risk Retention Group,
Savings, Surety, Trust, Underwriter, University, Variable,
If a corporation is to be a professional corporation, the
name must include the last name of at least one of the
stockholders, and must be followed by "Professional
Corporation," "Prof. Corp.," "Chartered," "Limited," or "Ltd."
For example, a physician's office might be incorporated as
"Dr. John Doe, M.D., a Professional Corporation."
While it doesn't cost anything to check with the Secretary
of State to see if a name is available for use, for a fee, they
will reserve the rights to any specific corporate name that
they determine to be available for your use and your use
alone. This reservation is good for ninety days, and may be
renewed if necessary. In Nevada, the number for checking
name availability is (702) 687-5203.
If you're in business now, or are planning to go into
business soon, you should either reserve the name you
want to use to prevent another company form using your
name on that state's records, or incorporate under that
name now. If you plan to do business in a number of
states, the chances are greater that one of the states will
have a conflict with the name you would like to use. Only
by checking and rechecking can you insure that your
chosen name is available for use. Many states may allow
you to register the name of your foreign corporations
without qualifying it to do business in that state, so
remember to ask if that service is available.
Once your name has been approved for use by the state,
you still may need to make sure that the name you have
selected is not registered as a federal trademark on the
Principal Register in Washington, D.C. If a similarity exists
and a dispute arises, you may have to prove that you have
a prior right to the use of the name.
The Nevada Secretary of State has a telephone number
where anyone can call and check the status of a
corporation. That number is 900-535-3355.
A corporation must be maintained by filing the annual list
and officers and directors, and paying the annual fee. If the
corporation does not follow this procedure and is between
sixty and two-hundred seventy days late, it lapses into
"delinquent status." A delinquent corporation may be
brought current any time during this period by paying an
additional fee. The Secretary of State will only notify the
resident agent in writing of a delinquency or revocation of
corporate charter, not the directors, officers, or
If the corporation has not been brought current within nine
months, the corporate charter will be revoked by the state.
A corporation that has been revoked may be reinstated any
time within five years, by paying all of the fees that would
have applied during the period of revocation and an
The catch is, that once your corporation has been revoked,
your corporate name is no longer reserved by the Secretary
of State, and someone else can incorporate under your
name. Also, any action taken during the period of
revocation is outside the protection of the corporate veil.
Certificate of Good Standing
Upon request, the Secretary of State will issue a
"Certificate of Good Standing" to any corporation that is
current in its filings and fees with the state. This certificate
costs , and validates that the corporation was in good
standing as of the date the certificate is issued.
Anytime that you qualify a Nevada corporation to do
business in another state, you are required to provide to
that state a Certificate of Good Standing from the Secretary
of State's office. Banks also will require a Certificate of
Good Standing in many instances, especially when
applying for corporate credit or loans.
The Nevada Secretary of State's office has been
traditionally extremely responsive to the needs of Nevada
corporations. The number of corporations filed with the
State in recent years has forced some limits on their ability
to respond to some requests. Frankly, in many respects
the Secretary of State's office has become bureaucratic to
a degree you might expect of a larger state.
Another significant change to Nevada's Corporation Code is
the allowance for filing corporate documents via FAX
machine or other technologies not yet developed. As of this
writing, the Secretary of State's office is still trying to
decide how to handle these technologies, since live
signatures and notaries are still required to be on file. It is
anticipated that policies may be developed in coming years
that will allow for filing Nevada corporations by FAX or
Even so, they continually make changes to improve. In the
1991 Nevada Legislature, the Secretary of State petitioned
for several new changes that continue to put the office in
the forefront of existing customer service technology.
The Secretary of State now allows for a 24-hour rush for
any filing of corporate status. The 24-hour rush includes
filing articles of incorporation, amendments or mergers,
corporate searches, or reinstatements. If you need to use
this service, be aware that the Secretary of State's office
reserves the right to use all 24 hours of the window they
Small Corporate Offering Registration (SCOR)
Nevada has recently adopted the Small Corporate Offering
Registration Form, (SCOR Form U-7) which allows a
business to reach capital through a public offering of up to
$1 million every twelve months. The SCOR program was
developed by the North American Securities Administrators
Association (NASAA) in cooperation with the Securities
and Exchange Commission and the American Bar
Association, and contemplates an exemption from federal
registration by virtue of Rule 504 of Regulation D of the
federal securities code.
This type of registration has been made available in 34
states across the country. The program allows easier
access to public capital at a lower cost. The principal
innovation of this program is the creation of the simplified
form with a question-and-answer format that permits an
officer of a corporation to fill in the blanks, file it with a state
securities administration, and, upon approval, use it as a
disclosure document in a public offering. One of the notable
features of this program is the requirement that shares be
sold at a minimum of per share to avoid the common
pitfalls of a penny stock offering. A SCOR offering is far
less expensive than a regular initial private offering (IPO),
and you don't need a high-paid underwriter.
A SCOR filing may be easier than a fully registered stock
offering, but it is not necessarily a breeze to accomplish. It
can still be a challenging process involving the preparation
of necessary forms and documents, getting state approval
for the offering, selling the stock, and dealing with the
administrative tasks of having additional investors. As a rule
of thumb, a SCOR offering should take at least three to six
months to complete.
The U-7 application is designed in a question and answer
format, and asks for information on the company's history,
directors and officers, risk factors, assets, capitalization,
use of proceeds and plans for distribution. There are about
250 questions in all. In addition, the application requires
that the articles of incorporation, bylaws, and audited
financial statement be submitted. Even then, expect to
resubmit the application several times until it's format is
Several methods can be used to sell the shares, including
direct mail, telemarketing, commercial advertisement,
networking, and sales presentations. As an alternative, the
corporation could engage an underwriter or bank, which
usually charge a 10 to 15 percent fee.