If the owner of a privately registered vehicle drove down an interstate and was involved in an accident wherein the following months a lawsuit ensued, the "cause of action" for that lawsuit would be the automobile accident. Because the automobile accident would not have a direct relationship with the Nevada business entity, the entity would not be listed in the lawsuit. However if the Plaintiff's attorney chose to pursue the assets of the entity, it would be considered an “outside” lawsuit. This concept can be further understood by viewing the submarine above. Just like the torpedo is bouncing off the hull of the craft, so too would the Plaintiff hit the Charging Order Protection and be deflected from reaching any of the assets within the entity.

If the owners of an apartment building, a rental home and a beach house were all titled into one Nevada entity and the rental home caught fire burning down half the city block, the owner would invariably be sued. The "cause of action" for that lawsuit would be the rental home fire. Because the rental home fire would have been directly involved with the business of the entity, the entity would be listed in the lawsuit. When the Plaintiff's attorney pursues the assets of the entity, it would be considered an "inside" lawsuit. This concept can be further understood by viewing the submarine above. You will see that there are little dotted lines “separating” one home from the other inside the craft. Many investors are mistaken in their belief that the charging order protection is somehow a universal protectorate.

The Charging Order Protection does NOT apply to an Inside Lawsuit!

Bad News: Once a lawsuit ensues and the cause of action is determined to be related directly to the business operations of the entity, it is the equivalent of having the submarine punctured. There is nothing to protect any of the other assets owned by the Nevada business entity from being seized by a judgement creditor.

Good News: Stockholders and members of Nevada business entities are not liable for the debts and obligations of the entity. There is no personal liability for any stockholders or members beyond the scope of their investment into the entity. Stockholder and member losses are contained to their respective capital or equity investment in the entity.

The loss of the rental home due to fire was unfortunate and hopefully the insurance policy would compensate for the loss. However, a judgement creditor seizing the equity in the apartment building and beach house was unnecessary and avoidable. When an individual has valuable assets, they should be placed into separate entities based on the overall value and risk of the asset. This concept can be further understood by viewing the submarines above. Had the properties been placed in separate entities the loss would have been isolated. Should assets contain enough equity, the costs to form and maintain bank accounts, bookkeeping and file annual tax returns for multiple entities is an easy, logical and tax-deductible decision.

Low Risk Assets

Low risk assets are anything of intrinsic value which are not subject to creating an inside lawsuit, such as: cash, stocks, bonds, mutual funds, CD's, gold, silver, coins, jewelry, artwork, etc.

High Risk Assets

High risk assets are anything of intrinsic value which may cause an inside lawsuit, such as: your home, cars, boats, planes, rental properties, businesses, etc.

Nevada Revised Statute (NRS) 78.747
Liability of stockholder, director or officer for debt or liability of corporation
(Added to NRS by 2001, 3170)

1. Except as otherwise provided by specific statute, no stockholder, director or officer of a corporation is individually liable for a debt or liability of the corporation, unless the stockholder, director or officer acts as the alter ego of the corporation.

2. A stockholder, director or officer acts as the alter ego of a corporation if:
(a) The corporation is influenced and governed by the stockholder, director or officer;
(b) There is such unity of interest and ownership that the corporation and the stockholder, director or officer are inseparable from each other;
(c) Adherence to the corporate fiction of a separate entity would sanction fraud or promote a manifest injustice.

3. The question of whether a stockholder, director or officer acts as the alter ego of a corporation must be determined by the court as a matter of law.

Additionally, the burden of proof rests entirely on the Plaintiff to prove all three of these requirements. Failure to prove any one of the three will result in a failure to pierce the veil. This is a nearly insurmountable task which most attorneys will not even attempt.

Nevada Revised Statute (NRS) 78.746
Action against stockholder by judgement creditor; limitation
(Added to NRS by 2007, 2639; A 2009, 2829)

1.  On application to a court of competent jurisdiction by a judgment creditor of a stockholder, the court may charge the stockholder’s stock with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the stockholder’s stock.

2.  This section:
(a) Applies only to a corporation that:
(1) Has more than 1 but fewer than 100 stockholders of record at any time.
(2) Is not a subsidiary of a publicly traded corporation, either in whole or in part.
(3) Is not a professional corporation as defined in NRS 89.020.
(b) Does not apply to any liability of a stockholder that exists as the result of an action filed before July 1, 2007.
(c) Provides the exclusive remedy by which a judgment creditor of a stockholder or an assignee of a stockholder may satisfy a judgment out of the stockholder’s stock of the corporation.
(d) Does not deprive any stockholder of the benefit of any exemption applicable to the stockholder’s stock.
(e) Does not supersede any private agreement between a stockholder and a creditor if the private agreement does not conflict with the corporation’s articles of incorporation, bylaws or any shareholder agreement to which the stockholder is a party.

3.  As used in this section, “rights of an assignee” means the rights to receive the share of the distributions or dividends paid by the corporation to which the judgment debtor would otherwise be entitled. The term does not include the rights to participate in the management of the business or affairs of the corporation or to become a director of the corporation.

Internal Revenue Service (IRS) 1977 Revised Ruling #137

For Federal income tax purposes an assignee (judgement creditor) is treated as a substituted (member) and, as such, must report the distributive share of (member) items of income, gain, loss, deduction, and credit attributable to the assigned interest on assignee's Federal income tax return in the same manner and in the same amounts that would be required if assignee was a substituted (member). Therefore, if a (membership) interest is subject to a charging order, the (managing member) can, and most likely will, withhold all profit distributions in the future. Thus, the creditor's claim will generally remain unsatisfied, which encourages the creditor to either abandon the claim or to settle for a reduced amount. The debtor partner/member can still receive funds from the partnership/company in the form of a salary, advances, or loans, none of which equate to “profit distributions”.

“Alien” Corporation

An “Alien” corporation operates in one or more countries outside the one in which it was formed . (A corporation is formed in Nevada and conducts business in Canada.)

“C” Corporation

When a corporation is created with the Secretary of State, they are all initially created as “C” corporations. Once the entity is formed then a tax election is made (such as an “S” or “501(C)(3)” tax election). “C” corporations allow for an unlimited number of stockholders.

“Closely Held” Corporation

A family or close group of people own a "Closely Held" corporation and its shares are generally not to be sold outside the family or group. One method of determining if a corporation is closely held is to check and see if at any time during the previous six months more than 50% of the value of its outstanding stock are owned directly or indirectly by five or fewer individuals.

Corporation “Sole”

A non-profit corporation specifically designated for religious endeavors is a corporation “Sole”. It can be formed to acquire, hold or dispose of church or religious society property for the benefit of religion, works of charity or public worship.

“Domestic” Corporation

A “Domestic” corporation operates in the state in which it was formed. (A corporation is formed in Nevada and conducts business in Nevada.)

“Foreign” Corporation

A “Foreign” corporation operates in one or more states outside the one in which it was formed. (A corporation is formed in Nevada and conducts business in California.)

“Holding” Corporation

When one corporation controls another corporations, usually called subsidiaries, then it is considered a “Holding” corporation. A holding corporation maintains control of its subsidiary when it owns at least 80% of its stock. The IRS will allow, or may request, a “Holding” corporation to combine their income and expenses and file a consolidated tax return that includes all subsidiaries.

“Non for Profit” Corporation

A “Non for Profit” corporation is often referred to as a "501(C)(3)" and recognized by the IRS as a tax-exempt entity which has been organized for a public or charitable purpose. A “Non for Profit” corporation must have at least 5 directors or trustees and, upon dissolution, must either distribute its assets to the state, federal government or another entity.

“Personal Holding” Corporation

The IRS designates any corporation with over 60% of its income being passive, and for which five or less people own over 50% of the stock at any time during the last 6 months of the tax year, to be a “Personal Holding” corporation. Under the stock ownership principle, the rules consider stock owned by a corporation, partnership, or estate to be owned proportionately by its shareholders, partners, or beneficiaries.

“Personal Service” Corporation

A “Personal Service” corporation is determined by function and ownership and is generally operated by lawyers, accountants, consultants, architects, engineers and psychiatrists, etc. We rarely recommend this entity as there is a 35% flat tax on all personal service corporations. There are other more suitable choices available such as “Professional” corporations and “Professional” limited liability companies.

“Professional” Corporation

A “Professional” corporation or “PC” (some states refer to them as a “Professional Association” or “PA”) is a sub-category of a personal service corporation. The primary distinction is that the owner must be licensed or otherwise legally authorized to render professional services. In most instances, a professional corporation or association may only offer one type of professional service at a time and is prohibited from simultaneously conducting any other types of business or service.

“Public” vs. “Private” Corporation

A “Public” corporation, such as Microsoft or General Electric, is one which is registered with the Securities Exchange Commission (SEC) and has stock available for purchase on the open market with a stock exchange such as the New York Stock Exchange (NYSE). A “Private” corporation is one in which the ownership of the company is not available for sale on any public market.

“S” Corporation

An “S” corporation is a “C” corporation which has made an “S” tax election. The primary difference is earnings, or profits, pass through directly to the individual(s) tax returns. “S” corporations typically match their fiscal year-end with the calendar year-end and all profits are taxed even, if not distributed. State taxes apply to individuals who reside in states with an individual state income tax. “S” corporations may have a maximum of 75 shareholders with one class of stock and are generally smaller sized companies. “S” corporations files a 1040 tax return with the IRS.

Nevada Revised Statute (NRS) 78.030
Nevada Resident Agent Filing Requirements

1. One or more persons may establish a corporation for the transaction of any lawful business, or to promote or conduct any legitimate object or purpose, pursuant and subject to the requirements of this chapter, by:

(a) Signing and filing in the Office of the Secretary of State articles of incorporation; and

(b) Filing a certificate of acceptance of appointment, signed by the resident agent of the corporation, in the Office of the Secretary of State.

2. The articles of incorporation must be as provided in NRS 78.035, and the Secretary of State shall require them to be in the form prescribed. If any articles are defective in this respect, the Secretary of State shall return them for correction.

Federal Income Tax

State Income Taxes

Supreme Court Justice
Louis D. Brandeis
(1916-1939)

“I live in Alexandria Virginia. Near the Supreme Court Chambers is a toll bridge across the Potomac. When in a rush, I pay the quarter toll and get home early. However, I usually drive outside the downtown section of the city and cross the Potomac on a free bridge. This bridge was placed outside the downtown Washington, DC area to serve a useful social service, getting drivers to drive the extra mile and to help alleviate congestion during rush hour. If I went over the toll bridge and through the barrier without paying the toll, I would be committing tax evasion. If, however, I drive the extra mile outside the city of Washington to the free bridge, I am using a legitimate, logical, and suitable method of tax avoidance, and I am performing a useful social service by doing so. For my tax evasion, I should be punished. For my tax avoidance, I should be commended. The tragedy of life today is that so few people know that the free bridge even exists."

Individual Tax Deductions

Corporate Tax Deductions

• Articles of Association
  A document detailing the issuance of shares, voting rights and dividend rights of shareholders, restrictions on the transfer of shares, shareholder meetings as well as rules and meetings of the Board of Directors.

• Authorized Capital Stock
  The number of shares that a company may issue. At the time of incorporation, the number of shares authorized will greatly exceed the number of shares issued. Changes in capital stock may occur only with the approval of the company shareholders.

• Company Objects
  The intended business activities of a company. A company may not be created solely for tax benefits. Company objects, or business purpose, is mandatory in virtually every jurisdiction in the world.

• Memorandum of Association
  A document specifying the company name, location of the registered office, business activities, liabilities of the members and value of the company shares.

• Nominee
  A person (individual or corporate body) nominated and appointed to act in a public capacity on behalf of an officer, account signatory or shareholder of a company in order to protect their identity and privacy.

• Nominee Account Signatory
  An individual nominated and appointed to sign and administer all bank account and brokerage account transactions according to the direction of the actual account holder.

• Nominee Director
  A "Nominee" Director does not exist outside the United States. The person (individual or corporate body) listed as the Director of a company is recognized by the courts as the liable party for the proper administration of the company. Director services are accompanied with a signed fiduciary agreement binding the director to act only upon clear instruction from the shareholder(s) and prevents unauthorized activities.

• Nominee Shareholder
  A person (individual or corporate body) nominated and appointed to be listed on applications and company documents in order to protect the identity and privacy of the actual owner. Shareholder services are accompanied with a signed declaration of trust binding the nominee shareholder to act only upon clear instruction from the actual owner and prevents the unauthorized sale of shares.

• Paid Up Capital
  The amount of funding that has been paid in full for company shares.

• Resident Agent
  An individual designated to receive any service of process, summons and complaint (lawsuit) or vital government documents on behalf of an entity. The services of a resident agent are mandatory in virtually every jurisdiction in the world.

• Registered Office
  The physical location where an entity is domiciled and considered the physical point of contact for all official correspondence. The services of a registered office are mandatory in virtually every jurisdiction in the world.

• Share Capital
  The currency specific value of issued shares in a company. Not all jurisdictions require share capital to be fully paid at the time of incorporation. Generally, a company is incorporated with the highest allowable share capital at the lowest available government fee.

• Shelf Company
  A pre-existing company that is sitting on a proverbial shelf and available for immediate purchase.

• Ultimate Beneficial Owners
  An individual who enjoys the benefit of ownership in a company, even if title is held in the name of another person (individual or corporate body).

• If I have insurance, do I still need asset protection services?
  
  Insurance policies are mandatory in many instances and helpful in recovering your assets due to various types of loss. Be wary that not all insurance policies are alike and exclusions or claim denials could leave you without coverage. Insurance without proper entity structuring is no better than proper entity structuring without insurance. We recommend a sensible balance of both.
  

• Which is more important, asset protection or tax savings?
  
  Most assets within an estate vary in equity, cash flow, risk and overall sentimental value and should be weighed individually. The benefits of asset protection often work favorably with tax laws and a person is fortunate to receive the best of both worlds. Other times, the two may be diametrically opposed and a person is forced with compromising or even choosing between them.
  

• How did you arrive at your current pricing structure and annual renewal rates?
  We have conducted studies of services provided by other companies ranging from cheap low-end documents found online to expensive high-end specialized attorneys. We have done our best to set prices which, although not cheap, provide outstanding legal documents and unparalleled customer support at reasonable fixed rates. Our fees are commensurate to the work being performed. Renewal rates are roughly ⅓ of the incorporation costs within the United States, while the complexities of working within the international community draw higher renewal rates. As a company, we will not bill additional charges for either your initial consultation(s) or for the ongoing help you will invariably need once your entities and services have been established. Having reliable, friendly and competent support throughout the year is worth its weight in gold.
  

• How do I know when to complete my estate planning?
  
  Asset protection is akin to wearing a seat belt. The decision to protect yourself, family and loved ones is made long before an accident occurs. Should you find yourself in the uncomfortable position where an accident is imminent, you simply cannot reach back and try to put your seat belt on in the split second before someone hits you. In the same manner once you have been served with a lawsuit, or should your family suffer the loss of your untimely death, your entire estate is effectively frozen. You either have your assets protected and your estate in order, or you don't.
  

• Is incorporating offshore a good idea?
  
  Not unless you enjoy serving coffee! As soon as you take your business offshore and step one foot outside the United States border, you can be assured the Internal Revenue Service (IRS) will be knocking at your door requesting a detailed explanation for your actions. And unless you are prepared to sit-down and meet with IRS agents over a cup of coffee, we strongly suggest utilizing structures available within the United States. However, should you have legitimate business ventures offshore (not just internet based), or should you be looking to move a sizable amount of capital offshore through an irrevocable entity for succession estate planning purposes, or should you wish to obtain dual citizenship in another country, then you may have reasonable grounds for incorporating offshore.
  

• Do offshore companies pay any taxes?
  
  Most offshore companies pay very little, if any taxes. For example, a Hong Kong Private Company Limited by Shares is recognized internationally as a "low tax jurisdiction" and pays 0% tax on worldwide income, so long as no business is conducted with or within Hong Kong or by a Hong Kong resident.
  

• Will my offshore company need to pay any taxes?
  
  Its possible, but that is a question you will need to ask your tax advisor. Since laws, rules, rulings, regulations, statutes and codes are constantly changing and evolving, we recommend that you seek professional tax and legal advice in your country of residence to establish your specific tax liabilities.
  

• Can offshore countries offer true privacy and confidentiality?
  Yes. For example, the Republic of Seychelles is an independent nation and offers true privacy and confidentiality as they have avoided entering any information sharing agreements with other countries in exchange for foreign aid. Seychelles is also not subject to the EU Savings Tax Directive as are some United Kingdom overseas territories. Unless a person is wanted for serious international crimes, is being investigated by the Financial Intelligence Unit for something like money laundering or INTERPOL suspects them for human trafficking, the Republic of Seychelles does not share or report any information to overseas "principles" or organizations. Seychelles law regarding secrecy impose a duty on professionals to keep the affairs of their clients strictly confidential.