Benefits of Nevada Corporations

From time to time, and most recently this week, a new asset protection client has previously established LLCs, corporations, or other entities in the State of Nevada. I asked the most recent person why he decided to pay significantly more money to set up an LLC in Nevada. corporation. He said that under Nevada law corporations may issue “bearer shares” whose ownership is established by physical possession. In theory, the client explained, just before a creditor asked under oath about his ownership of investment the stockholder can give the shares to someone else and truthfully testify that he owns no share of stock in any Nevada company because he has relinquished physical possession of the share certificates. This argument sounds better than it would work in the real world.

The problem is that the creditor protection of Nevada bearer shares works only if the creditor asks only if the debtor currently owns any corporate stock. In real life creditors can ask as many other questions as they want in an effort to locate assets subject to execution. For example, a creditor can ask if the debtor has owned any stock in the past years, and if so, what happened to the shares.

A debtor must produce income tax returns. Tax returns include taxable income or losses from corporations and other investments. A creditor may ask about the current location and possession of any shares of stock which correspond to taxable income. A diligent creditor attorney will likely find out about any “bearer shares” a debtor owned previously and the current location of such shares.

Giving possession of bearer shares to another person without fair consideration will likely be discovered and reversed as a fraudulent conveyance. I have never found any advantage for a Florida resident to establish corporations or LLCs in Nevada or any other state unless the Florida resident owns property or does business in the other state.

Last updated on May 22, 2020

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