| New Nevada Corporate Laws You Need to Know | | | | What this means is that if your business and asset |
| ____________ | | | | protection plans are on the up and up, your privacy will |
| Bearer Shares Outlawed | | | | be protected. Or, to put it another way, if you are |
| ____________ | | | | engaged in fraud and other crimes, our firm will be |
| Ownership Disclosure Procedure Instituted | | | | happy to comply with these new rules. You may even |
| ____________ | | | | want to take your bad business somewhere else to |
| Stronger Asset Protection for Corporations | | | | begin with. But for the good guys, you will still maintain |
| The Nevada legislature made some significant | | | | your privacy. |
| changes to Nevada's Corporation Code in its most | | | | Two points are worthy of further note. First, for limited |
| recent session. You need to know these new rules. | | | | partnerships the only owners the new legislation aims |
| The biggest changes, which are effective July 1, 2007, | | | | for are the general partners. While the generals do |
| will be discussed in this article. As is often the case, the | | | | indeed control a limited partnership, frequently they only |
| rules and regulations used to carry out the new laws | | | | own 2% or less of the entity, and are usually just a |
| will be implemented over time, and we will keep you | | | | management corporation or LLC. The limited partners |
| informed of them as they arise. (If you or your friends | | | | will own 98% of the limited partnership and, except for |
| would like a free subscription to the Corporate Direct | | | | management, are the economic beneficiaries of the |
| Report please click here.) | | | | entity. |
| For now, there are three important changes and | | | | Whether the new law intentionally just wanted |
| several miscellaneous new rules you need to know | | | | information only on the general partners or will be |
| about immediately. | | | | corrected to include the limited partners' identities |
| 1. Bearer Shares Outlawed | | | | remains to be seen. But for now, people very |
| Bearer shares are stock certificates which, instead of | | | | concerned about privacy may want to use Nevada |
| listing the owner by name, list the owner only as "The | | | | limited partnerships. |
| Bearer." The supposed advantage of this was to | | | | The second point has to do with Wyoming. The |
| maintain privacy of ownership. The Bearer was | | | | corporate law of Wyoming does not have such an |
| whoever held the certificate, so shares could be | | | | ownership disclosure procedure. Yet. |
| transferred from one person to the next without notice | | | | Apparently the federal authorities are working to get |
| to anyone or recordation anywhere. | | | | similar legislation approved in other states, including |
| I have never really liked the whole notion of bearer | | | | Wyoming. We will keep you informed of such |
| shares. If someone comes to me with the bearer | | | | developments. Until then, once again, those very |
| certificate, how do I know if the certificate wasn't | | | | concerned about privacy may want to use Wyoming |
| stolen or forged? The idea of simply handing a | | | | entities. |
| certificate from one person to the next may sound | | | | 3. Stronger Asset Protection for Nevada Corporation |
| nice and easy (and a bit crafty) but such a transfer | | | | Shares |
| can create all sorts of tax problems. If you hand a | | | | One of the strongest asset protection laws on the |
| certificate representing a million dollar business over to | | | | books is the charging order. This law holds that a |
| your friend you've made a significant gift, for which gift | | | | judgment creditor of a member of an LLC or a |
| taxes are due. And when by prearrangement he | | | | partner of a limited partnership can't acquire those |
| hands the certificate back to you there's another | | | | interests directly and use that control to force a sale |
| taxable event. Worse yet, what if your 'friend' wouldn't | | | | of the assets. Instead, they only obtain the rights of an |
| give you the certificate back? | | | | assignee of the membership or partnership interest, |
| The big reason bearer shares were outlawed has to | | | | meaning they are only entitled to distributions from the |
| do with fraud. Less than ethical corporate promoters | | | | entity. They can't vote to sell the assets to satisfy their |
| would sell their less than ethical corporate clients on | | | | claim. They can't even vote to increase distributions. |
| the idea that by simply handing the bearer certificate | | | | They are stuck waiting for future distributions, which |
| over to a friend they could deny a judgment creditor | | | | may or may not come. The charging order is a very |
| (one with a court awarded judgment) access to the | | | | effective deterrent to frivolous litigation, especially in |
| business or other asset. Of course, such a transfer is | | | | Nevada and Wyoming LLC's and LP's where the |
| a fraudulent conveyance, meaning that a court could | | | | charging order is the exclusive remedy. |
| overturn the transfer if anyone ever found out about it. | | | | Up until now, the charging order had never applied to |
| The problem was that it could be very difficult to find | | | | shares of corporate stock. So, for example, if John got |
| out about it. As a result, bearer shares enabled a | | | | in a car wreck and his insurance did not cover him, the |
| certain class of people to commit fraud. The Nevada | | | | victim could proceed against all of his assets. If John |
| Legislature was right in outlawing bearer shares. | | | | owes 75% of a profitable corporation the victim could |
| 2. New Ownership Disclosure Procedures | | | | get control of the shares and vote to sell the business |
| The use of Nevada corporations and other entities to | | | | to satisfy the claim. This certainly is not fair to Jane, the |
| commit fraud is also the reason for this next big | | | | 25% owner of the business, who worked hard to build |
| change. It is unfortunate that privacy of entity | | | | it up only to see it sold out from under her. |
| ownership is now somewhat compromised, but when | | | | With Nevada's new law the charging order now |
| people continually abuse the system something will | | | | applies to shares of corporations. This is an excellent |
| usually give. | | | | development. |
| Apparently the federal and law enforcement | | | | There are several important rules to point out. The |
| authorities pushing for these changes played the | | | | charging order protection only applies to corporations |
| terrorist card-that insanely bad people were using the | | | | that have more than one and fewer than 75 |
| privacy of Nevada entities to ultimately greatly harm | | | | shareholders. If you own 100% of a profitable |
| us. While it is my opinion that this red hot card gets | | | | corporation you may well want to consider issuing a |
| played a little too often these days, there can be no | | | | nominal amount of shares to a relative or friend in |
| denying that domestic bad guys, your average | | | | order to gain the better protection. As well, the new |
| American scam artist, used Nevada privacy for | | | | law does not apply to subsidiaries of publically traded |
| nefarious purposes. | | | | companies or to professional corporations. |
| But the new law for corporations, LLC's, LP's, business | | | | The charging order protection for corporate shares |
| trusts and the like is not as bad as you may expect. | | | | does not apply to any litigation filed before July 1, 2007, |
| Here is the rule for corporations: | | | | and it does not supersede any private agreement |
| 1. In addition to any records required to be kept at the | | | | between a stockholder and a creditor. This new law |
| registered office pursuant to NRS 78.105, a corporation | | | | puts Nevada at the forefront of asset protection |
| that is not a publicly traded corporation shall maintain at | | | | states. While Wyoming will most probably follow suit, |
| its registered office or principal place of business in this | | | | until they do Nevada is the state in which to |
| State:a. A current list of its owners of record; orb. A | | | | incorporate. Even though Nevada's initial and annual |
| statement indicating where such a list is maintained. | | | | filing fees are somewhat higher than Wyoming's fees, |
| 2. The corporation shall:a. Provide the Secretary of | | | | the better protection is well worth the extra cost. |
| State with the name and contact information of the | | | | 4. Miscellaneous New Rules |
| custodian of the list described in subsection 1. The | | | | The new law dealt extensively with the conduct of |
| information required pursuant to this paragraph shall be | | | | restricted agents. A new category was created that |
| kept confidential by the Secretary of State.b. Provide | | | | of the commercial registered agent, which shall be |
| written notice to the Secretary of State within 10 days | | | | registered with state. Registered agents that don't |
| after any change in the information contained in the list | | | | comply with rules to be established by the Secretary |
| described in subsection 1. | | | | of State's office can be banned from the business. In |
| 3. Upon the request of any law enforcement agency | | | | keeping with the new disclosure rules, registered |
| in the course of a criminal investigation, the Secretary | | | | agents must keep a company's stock ledger for three |
| of State may require a corporation to:a. Submit to the | | | | years following the registration or termination of the |
| Secretary of State, within 3 business days, a copy of | | | | agent or dissolution of the company. |
| the list required to be maintained pursuant to | | | | The new law allows for professional LLCs. Many |
| subsection 1; orb. Answer any interrogatory submitted | | | | doctors, lawyers, CPAs and the like have wanted the |
| by the Secretary of State that will assist in the criminal | | | | flexibility of operating their practices as an LLC but |
| investigation. | | | | were prohibited from doing so. The new law follows |
| 4. If a corporation fails to comply with any requirement | | | | the trend of many states of now allowing for |
| pursuant to subsection 3, the Secretary of State may | | | | professional LLCs. |
| take any action necessary, including, without limitation, | | | | The importance of the corporate election of directors |
| the suspension or revocation of the corporate charter | | | | was underscored in the new law. Companies that fail |
| 5. The Secretary of State shall not reinstate or revive | | | | to elect directors within 18 months beware. The |
| a charter that was revoked or suspended pursuant to | | | | owners of 15% of the corporate stock can go to court |
| subsection 4 unless:a. The corporation complies with | | | | to force such an election. |
| the requirements of subsection 3; orb. The law | | | | The reinstatement of entities was made more |
| enforcement agency conducting the investigation | | | | effective. A corporation, LLC or LP that fails to pay its |
| advises the Secretary of State to reinstate or revive | | | | annual fees to the state can lose its right to do |
| the corporate charter. | | | | business. Reinstatement involves paying back fees to |
| 6. The Secretary of State may adopt regulations to | | | | bring the entity current with the state. The new law |
| administer the provisions of this section. | | | | provides that reinstatement reinstates the entity's right |
| It is important to note that Nevada is not asking for the | | | | to do business as if the entity had been current all |
| owners of the entity up front. The requirement is that | | | | along. |
| the registered agent either keeps a list of the owners | | | | As we have noticed before, the law is a dynamic and |
| or the name of a contact person who has a list of the | | | | ever changing area. Nevada's new laws prove the |
| owners. The Secretary of State will request the | | | | point. Once again, if you or a friend would like to |
| ownership list only when a law enforcement agency | | | | receive updates on changes to the corporate laws, |
| needs it for a criminal investigation. Not for a civil case | | | | please click here. |
| mind you, but only for a criminal case. | | | | |