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Nevada Corporations |
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LEGAL NOTICE: |
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Privacy of OwnershipIn the previous section we discussed how a corporation can be controlled privately through the use of nominee service and well-crafted bylaws. In the sidebar we also looked at how some of the very largest public corporations are run and how in many cases the corporate structure leaves the individual owners "in the dark" as to what is really going on with their corporation. A strong case could be made that most of the big corporations are headed by puppets, who merely act upon an off-stage "whisper in the ear" of the Board of Directors. Thus we have shown how it is entirely possible to control a corporation without ever owning any part of it, no matter how small or large the corporation might be. Small, private (see, it's not such a dirty word) corporations actually have a major advantage over large, public corporations-and that is especially true in Nevada, where:
Non-Disclosure of OwnershipIn Nevada, ownership of a corporation is not required to be disclosed on the visible public record. The Nevada Business Registration Form for mandatory licensing of all entities doing business in Nevada DOES ask for disclosure of all responsible parties, along with their ownership interests. The first thing to note is that this form is "private", i.e., it is not available to the public and is not useful to a prospective litigant doing an asset search. It IS, however, available to the IRS upon request and almost certainly is knowable to any court. We took the time to review the Nevada Business Registration Form with personnel from Nevada's Department of Taxation, especially with regard to situations where the listed officers and director of a corporation do not have an ownership interest, no stock has been issued and the business has no physical location wherein a customer could come to harm. The result? Non-disclosure of ownership. Non-Issuance of StockWho owns a corporation in which no stock has been issued? In this situation and in the absence of other evidence of ownership or control it appears the courts will presume ownership belongs to the corporation's officers and directors. If the corporation's internal records are disclosed and they show decisions are made by the Board and other corporate formalities are followed, this corporation is NOT yours unless you are the one in control. If you are not even on the Board but merely acting appropriately as, say, a vice president, assistant treasurer or "agent" of the corporation executing resolutions of the Board-and if no stock has been issued-it is apparent that this is NOT "your" corporation. Bearer SharesSince Nevada's statutes do not preclude the use of "bearer shares"-i.e., shares made out to "bearer" instead of any named entity-when it is desirable to issue shares, why not make them out in this way? Eventually it might become necessary to disclose who the bearers are-but again, if YOU do not own the stock and are merely protecting the privacy of those who do, this is NOT "your" corporation. This approach merely affords the corporation's management all the flexibility needed to work within the law to accomplish worthwhile goals, including privacy. We DO NOT generally recommend this approach; in most cases it is more desirable to simply not issue stock, as described above, but there are some cases where it's nice to have the option. ProxiesAnother technique used to control corporations is the use of proxies-the right to vote the stock held by "someone else". You have to be careful when using such proxies, however, as certain regulations contain wording such as, "who owns or controls the voting rights of stock". In such cases, perhaps the best approach is to use the concept but "seal the deal" with a handshake instead of putting it in writing. This can work especially well in situations where the other participants have similar needs of their own. Of course there is an element of trust involved but it is not usually that difficult to have a workable understanding with trusted friends, loved ones and family members that amounts to a proxy, without ever having a need to formalize the understanding. Voting or Non-Voting StockAs part of many estate plans the parents might own only 1% each of an entity, allowing the remaining 98% of the stock to be distributed among the heirs-to-be. If only the parents' 2% of the stock has voting rights, they retain control of the corporation because the heirs have no "say" at meetings. A corporation structured in this way could be the general manager of a limited partnership in which the corporation has NO ownership interest. Thus, the parents retain complete control while they are alive without owning any part of the limited partnership set up to benefit their heirs. This is just one example of the usefulness of voting versus non-voting stock to retain control without much ownership. "Uncertificated" StockNevada's statutes actually allow for "uncertificated" stock. Thus, ownership is only ever recorded in the stock ledger and there are no certificates to get damaged, lost or misplaced and no need for replacement of stock certificates. In this situation, whoever controls the stock ledger clearly controls the corporation and it can be very difficult for an "outsider" to assert an ownership interest due to Nevada's statutory protection of the corporate records. Debt HoldersNevada's statutes allow a debt holder to have all of the rights of a stockholder, setting up the peculiar situation where a corporation that has not even issued shares could in fact be owned by a debt holder, who would be entitled to call for a "shareholders" meeting and to VOTE. Whether or not a debt holder has voting rights is determined by the private bylaws of the corporation (by default this is NOT the case). It is simply not knowable by any outsider if this is the case. In court the presumption appears to be that debt holders are NOT owners-but this presumption can be set aside if the corporate records indicate otherwise. This is certainly one of the least known but most advantageous provisions of Nevada's special corporate statutes.
SummaryGiven all of the foregoing, imagine the challenges faced by someone outside of the corporation in determining who owns it: An asset search will not come up with the Nevada corporation in the first place; even if aware of the corporation, they can't find out who owns the corporation on any public record; they can't know whether or not stock has even been issued; if it has been issued, they still don't know if it is controlled by a "bearer", by proxy or by voting rights versus non-voting rights or even if there are certificates; and they can't know if the debt holders, if any, have an ownership interest. We'll share a comment made by a California-based private investigator because it cuts quickly to the bottom line faced by a potential attacker: "When I run into a Nevada corporation, I immediately tell my client that the cost of the investigation will at least double and at the same time the chances of a successful outcome are, at best, half. And if the target really knows what they're doing, it's worse than that." That is certainly a strong disincentive to any prospective litigant and succinctly states why privacy of ownership as available in Nevada can afford very strong protection against unwarranted attacks. This is especially true if you can assimilate the knowledge and "really know what you're doing". Click on any of the buttons below to continue your study of Nevada corporation PRIVACY:
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