| New Nevada Corporate Laws You Need to Know | | | | either 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 Outlawed | | | | enforcement agency needs it for a criminal |
| | | | investigation. Not for a civil case mind you, |
| ____________ | | | | but only for a criminal case. |
| | | | |
| Ownership Disclosure Procedure Instituted | | | | What 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 Corporations | | | | other crimes, our firm will be happy to |
| | | | comply with these new rules. You may even |
| The Nevada legislature made some significant | | | | want to take your bad business somewhere else |
| changes to Nevada's Corporation Code in its | | | | to begin with. But for the good guys, you |
| most recent session. You need to know these | | | | will still maintain your privacy. |
| new rules. | | | | |
| | | | Two points are worthy of further note. First, |
| The biggest changes, which are effective July | | | | for 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 and | | | | partners. While the generals do indeed |
| regulations used to carry out the new laws | | | | control a limited partnership, frequently |
| will be implemented over time, and we will | | | | they only own 2% or less of the entity, and |
| keep you informed of them as they arise. (If | | | | are usually just a management corporation or |
| you or your friends would like a free | | | | LLC. The limited partners will own 98% of the |
| subscription to the Corporate Direct Report | | | | limited 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 need | | | | Whether 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 Outlawed | | | | partners' 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 supposed | | | | The second point has to do with Wyoming. The |
| advantage of this was to maintain privacy of | | | | corporate law of Wyoming does not have such |
| ownership. The Bearer was whoever held the | | | | an ownership disclosure procedure. Yet. |
| certificate, so shares could be transferred | | | | |
| from one person to the next without notice to | | | | Apparently 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 of | | | | keep you informed of such developments. Until |
| bearer shares. If someone comes to me with | | | | then, once again, those very concerned about |
| the bearer certificate, how do I know if the | | | | privacy may want to use Wyoming entities. |
| certificate wasn't stolen or forged? The idea | | | | |
| of simply handing a certificate from one | | | | 3. Stronger Asset Protection for Nevada |
| person to the next may sound nice and easy | | | | Corporation Shares |
| (and a bit crafty) but such a transfer can | | | | |
| create all sorts of tax problems. If you hand | | | | One of the strongest asset protection laws on |
| a certificate representing a million dollar | | | | the books is the charging order. This law |
| business over to your friend you've made a | | | | holds that a judgment creditor of a member of |
| significant gift, for which gift taxes are | | | | an LLC or a partner of a limited partnership |
| due. And when by prearrangement he hands the | | | | can't acquire those interests directly and |
| certificate back to you there's another | | | | use that control to force a sale of the |
| taxable event. Worse yet, what if your | | | | assets. Instead, they only obtain the rights |
| 'friend' wouldn't give you the certificate | | | | of 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 outlawed | | | | They can't vote to sell the assets to satisfy |
| has to do with fraud. Less than ethical | | | | their claim. They can't even vote to increase |
| corporate promoters would sell their less | | | | distributions. They are stuck waiting for |
| than ethical corporate clients on the idea | | | | future distributions, which may or may not |
| that by simply handing the bearer certificate | | | | come. The charging order is a very effective |
| over to a friend they could deny a judgment | | | | deterrent 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. Of | | | | the charging order is the exclusive remedy. |
| course, such a transfer is a fraudulent | | | | |
| conveyance, meaning that a court could | | | | Up until now, the charging order had never |
| overturn the transfer if anyone ever found | | | | applied to shares of corporate stock. So, for |
| out about it. The problem was that it could | | | | example, if John got in a car wreck and his |
| be very difficult to find out about it. As a | | | | insurance did not cover him, the victim could |
| result, bearer shares enabled a certain class | | | | proceed against all of his assets. If John |
| of people to commit fraud. The Nevada | | | | owes 75% of a profitable corporation the |
| Legislature was right in outlawing bearer | | | | victim 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 Procedures | | | | the 25% owner of the business, who worked |
| | | | hard to build it up only to see it sold out |
| The use of Nevada corporations and other | | | | from under her. |
| entities to commit fraud is also the reason | | | | |
| for this next big change. It is unfortunate | | | | With Nevada's new law the charging order now |
| that privacy of entity ownership is now | | | | applies to shares of corporations. This is an |
| somewhat compromised, but when people | | | | excellent 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 enforcement | | | | applies to corporations that have more than |
| authorities pushing for these changes played | | | | one and fewer than 75 shareholders. If you |
| the terrorist card-that insanely bad people | | | | own 100% of a profitable corporation you may |
| were using the privacy of Nevada entities to | | | | well want to consider issuing a nominal |
| ultimately greatly harm us. While it is my | | | | amount of shares to a relative or friend in |
| opinion that this red hot card gets played a | | | | order to gain the better protection. As well, |
| little too often these days, there can be no | | | | the new law does not apply to subsidiaries of |
| denying that domestic bad guys, your average | | | | publically traded companies or to |
| American scam artist, used Nevada privacy for | | | | professional 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 as | | | | before July 1, 2007, and it does not |
| bad as you may expect. Here is the rule for | | | | supersede 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 be | | | | states. While Wyoming will most probably |
| kept at the registered office pursuant to NRS | | | | follow suit, until they do Nevada is the |
| 78.105, a corporation that is not a publicly | | | | state in which to incorporate. Even though |
| traded corporation shall maintain at its | | | | Nevada's initial and annual filing fees are |
| registered office or principal place of | | | | somewhat higher than Wyoming's fees, the |
| business in this State:a. A current list of | | | | better protection is well worth the extra |
| its owners of record; orb. A statement | | | | cost. |
| 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 contact | | | | The new law dealt extensively with the |
| information of the custodian of the list | | | | conduct of restricted agents. A new category |
| described in subsection 1. The information | | | | was created that of the commercial registered |
| required pursuant to this paragraph shall be | | | | agent, which shall be registered with state. |
| kept confidential by the Secretary of | | | | Registered agents that don't comply with |
| State.b. Provide written notice to the | | | | rules to be established by the Secretary of |
| Secretary of State within 10 days after any | | | | State's office can be banned from the |
| change in the information contained in the | | | | business. 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 enforcement | | | | following the registration or termination of |
| agency in the course of a criminal | | | | the agent or dissolution of the company. |
| investigation, the Secretary of State may | | | | |
| require a corporation to:a. Submit to the | | | | The new law allows for professional LLCs. |
| Secretary of State, within 3 business days, a | | | | Many doctors, lawyers, CPAs and the like have |
| copy of the list required to be maintained | | | | wanted the flexibility of operating their |
| pursuant to subsection 1; orb. Answer any | | | | practices as an LLC but were prohibited from |
| interrogatory submitted by the Secretary of | | | | doing so. The new law follows the trend of |
| State that will assist in the criminal | | | | many states of now allowing for professional |
| investigation. | | | | LLCs. |
| | | | |
| 4. If a corporation fails to comply with any | | | | The importance of the corporate election of |
| requirement pursuant to subsection 3, the | | | | directors was underscored in the new law. |
| Secretary of State may take any action | | | | Companies that fail to elect directors within |
| necessary, including, without limitation, the | | | | 18 months beware. The owners of 15% of the |
| suspension or revocation of the corporate | | | | corporate stock can go to court to force such |
| charter | | | | an election. |
| | | | |
| 5. The Secretary of State shall not reinstate | | | | The reinstatement of entities was made more |
| or revive a charter that was revoked or | | | | effective. 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 the | | | | lose its right to do business. Reinstatement |
| requirements of subsection 3; orb. The law | | | | involves paying back fees to bring the entity |
| enforcement agency conducting the | | | | current with the state. The new law provides |
| investigation advises the Secretary of State | | | | that 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 of | | | | As 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 not | | | | friend 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 agent | | | | here. |