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New Nevada Corporate Laws you Need to Know

New  Nevada  Corporate  Laws You Need to Knoweither keeps a list of the owners or the name
of a contact person who has a list of the
____________owners. The Secretary of State will request
the ownership list only when a law
Bearer  Shares  Outlawedenforcement agency needs it for a criminal
investigation. Not for a civil case mind you,
____________but  only  for  a  criminal  case.
Ownership  Disclosure  Procedure  InstitutedWhat this means is that if your business and
asset protection plans are on the up and up,
____________your privacy will be protected. Or, to put it
another way, if you are engaged in fraud and
Stronger  Asset  Protection  for Corporationsother crimes, our firm will be happy to
comply with these new rules. You may even
The Nevada legislature made some significantwant to take your bad business somewhere else
changes to Nevada's Corporation Code in itsto begin with. But for the good guys, you
most recent session. You need to know thesewill  still  maintain  your  privacy.
new  rules.
Two points are worthy of further note. First,
The biggest changes, which are effective Julyfor limited partnerships the only owners the
1, 2007, will be discussed in this article.new legislation aims for are the general
As is often the case, the rules andpartners. While the generals do indeed
regulations used to carry out the new lawscontrol a limited partnership, frequently
will be implemented over time, and we willthey only own 2% or less of the entity, and
keep you informed of them as they arise. (Ifare usually just a management corporation or
you or your friends would like a freeLLC. The limited partners will own 98% of the
subscription to the Corporate Direct Reportlimited partnership and, except for
please  click  here.)management, are the economic beneficiaries of
the  entity.
For now, there are three important changes
and several miscellaneous new rules you needWhether the new law intentionally just wanted
to  know  about  immediately.information only on the general partners or
will be corrected to include the limited
1.  Bearer  Shares  Outlawedpartners' identities remains to be seen. But
for now, people very concerned about privacy
Bearer shares are stock certificates which,may  want to use Nevada limited partnerships.
instead of listing the owner by name, list
the owner only as "The Bearer." The supposedThe second point has to do with Wyoming. The
advantage of this was to maintain privacy ofcorporate law of Wyoming does not have such
ownership. The Bearer was whoever held thean  ownership  disclosure  procedure.  Yet.
certificate, so shares could be transferred
from one person to the next without notice toApparently the federal authorities are
anyone  or  recordation  anywhere.working to get similar legislation approved
in other states, including Wyoming. We will
I have never really liked the whole notion ofkeep you informed of such developments. Until
bearer shares. If someone comes to me withthen, once again, those very concerned about
the bearer certificate, how do I know if theprivacy  may  want  to  use Wyoming entities.
certificate wasn't stolen or forged? The idea
of simply handing a certificate from one3. Stronger Asset Protection for Nevada
person to the next may sound nice and easyCorporation  Shares
(and a bit crafty) but such a transfer can
create all sorts of tax problems. If you handOne of the strongest asset protection laws on
a certificate representing a million dollarthe books is the charging order. This law
business over to your friend you've made aholds that a judgment creditor of a member of
significant gift, for which gift taxes arean LLC or a partner of a limited partnership
due. And when by prearrangement he hands thecan't acquire those interests directly and
certificate back to you there's anotheruse that control to force a sale of the
taxable event. Worse yet, what if yourassets. Instead, they only obtain the rights
'friend' wouldn't give you the certificateof an assignee of the membership or
back?partnership interest, meaning they are only
entitled to distributions from the entity.
The big reason bearer shares were outlawedThey can't vote to sell the assets to satisfy
has to do with fraud. Less than ethicaltheir claim. They can't even vote to increase
corporate promoters would sell their lessdistributions. They are stuck waiting for
than ethical corporate clients on the ideafuture distributions, which may or may not
that by simply handing the bearer certificatecome. The charging order is a very effective
over to a friend they could deny a judgmentdeterrent to frivolous litigation, especially
creditor (one with a court awarded judgment)in Nevada and Wyoming LLC's and LP's where
access to the business or other asset. Ofthe  charging  order is the exclusive remedy.
course, such a transfer is a fraudulent
conveyance, meaning that a court couldUp until now, the charging order had never
overturn the transfer if anyone ever foundapplied to shares of corporate stock. So, for
out about it. The problem was that it couldexample, if John got in a car wreck and his
be very difficult to find out about it. As ainsurance did not cover him, the victim could
result, bearer shares enabled a certain classproceed against all of his assets. If John
of people to commit fraud. The Nevadaowes 75% of a profitable corporation the
Legislature was right in outlawing bearervictim could get control of the shares and
shares.vote to sell the business to satisfy the
claim. This certainly is not fair to Jane,
2.  New  Ownership  Disclosure  Proceduresthe 25% owner of the business, who worked
hard to build it up only to see it sold out
The use of Nevada corporations and otherfrom  under  her.
entities to commit fraud is also the reason
for this next big change. It is unfortunateWith Nevada's new law the charging order now
that privacy of entity ownership is nowapplies to shares of corporations. This is an
somewhat compromised, but when peopleexcellent  development.
continually abuse the system something will
usually  give.There are several important rules to point
out. The charging order protection only
Apparently the federal and law enforcementapplies to corporations that have more than
authorities pushing for these changes playedone and fewer than 75 shareholders. If you
the terrorist card-that insanely bad peopleown 100% of a profitable corporation you may
were using the privacy of Nevada entities towell want to consider issuing a nominal
ultimately greatly harm us. While it is myamount of shares to a relative or friend in
opinion that this red hot card gets played aorder to gain the better protection. As well,
little too often these days, there can be nothe new law does not apply to subsidiaries of
denying that domestic bad guys, your averagepublically traded companies or to
American scam artist, used Nevada privacy forprofessional  corporations.
nefarious  purposes.
The charging order protection for corporate
But the new law for corporations, LLC's,shares does not apply to any litigation filed
LP's, business trusts and the like is not asbefore July 1, 2007, and it does not
bad as you may expect. Here is the rule forsupersede any private agreement between a
corporations:stockholder and a creditor. This new law puts
Nevada at the forefront of asset protection
1. In addition to any records required to bestates. While Wyoming will most probably
kept at the registered office pursuant to NRSfollow suit, until they do Nevada is the
78.105, a corporation that is not a publiclystate in which to incorporate. Even though
traded corporation shall maintain at itsNevada's initial and annual filing fees are
registered office or principal place ofsomewhat higher than Wyoming's fees, the
business in this State:a. A current list ofbetter protection is well worth the extra
its owners of record; orb. A statementcost.
indicating  where  such a list is maintained.
4.  Miscellaneous  New  Rules
2. The corporation shall:a. Provide the
Secretary of State with the name and contactThe new law dealt extensively with the
information of the custodian of the listconduct of restricted agents. A new category
described in subsection 1. The informationwas created that of the commercial registered
required pursuant to this paragraph shall beagent, which shall be registered with state.
kept confidential by the Secretary ofRegistered agents that don't comply with
State.b. Provide written notice to therules to be established by the Secretary of
Secretary of State within 10 days after anyState's office can be banned from the
change in the information contained in thebusiness. In keeping with the new disclosure
list  described  in  subsection  1.rules, registered agents must keep a
company's stock ledger for three years
3. Upon the request of any law enforcementfollowing the registration or termination of
agency in the course of a criminalthe  agent  or  dissolution  of  the company.
investigation, the Secretary of State may
require a corporation to:a. Submit to theThe new law allows for professional LLCs.
Secretary of State, within 3 business days, aMany doctors, lawyers, CPAs and the like have
copy of the list required to be maintainedwanted the flexibility of operating their
pursuant to subsection 1; orb. Answer anypractices as an LLC but were prohibited from
interrogatory submitted by the Secretary ofdoing so. The new law follows the trend of
State that will assist in the criminalmany states of now allowing for professional
investigation.LLCs.
4. If a corporation fails to comply with anyThe importance of the corporate election of
requirement pursuant to subsection 3, thedirectors was underscored in the new law.
Secretary of State may take any actionCompanies that fail to elect directors within
necessary, including, without limitation, the18 months beware. The owners of 15% of the
suspension or revocation of the corporatecorporate stock can go to court to force such
charteran  election.
5. The Secretary of State shall not reinstateThe reinstatement of entities was made more
or revive a charter that was revoked oreffective. A corporation, LLC or LP that
suspended pursuant to subsection 4 unless:a.fails to pay its annual fees to the state can
The corporation complies with thelose its right to do business. Reinstatement
requirements of subsection 3; orb. The lawinvolves paying back fees to bring the entity
enforcement agency conducting thecurrent with the state. The new law provides
investigation advises the Secretary of Statethat reinstatement reinstates the entity's
to reinstate or revive the corporate charter.right to do business as if the entity had
been  current  all  along.
6. The Secretary of State may adopt
regulations to administer the provisions ofAs we have noticed before, the law is a
this  section.dynamic and ever changing area. Nevada's new
laws prove the point. Once again, if you or a
It is important to note that Nevada is notfriend would like to receive updates on
asking for the owners of the entity up front.changes to the corporate laws, please click
The requirement is that the registered agenthere.



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