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California_Businesses_Incorporating_In_Nevada

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					Title:
California Businesses Incorporating In Nevada

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457

Summary:
California is a notoriously bad state to do business in. Regulations,
worker’s compensation and tax issues overwhelm companies. Seeking relief,
many incorporate in Nevada. Unless done carefully, this decision can lead
to disaster.


Keywords:
california business, nevada incorporation,


Article Body:
California is a notoriously bad state to do business in. Regulations,
worker’s compensation and tax issues overwhelm companies. Seeking relief,
many incorporate in Nevada. Unless done carefully, this decision can lead
to disaster.

Doing Business - Jurisdiction

Jurisdiction is a legal term used to define who has authority over
something. Applied to this article, the term refers to the issue of which
state has the right to regulate a business. In California, the issue
boils down to whether you are considered to be “doing business” in the
state.

California is the one of the most aggressive states when it comes to
defining jurisdiction. If you maintain offices or have employees in the
state, you are considered to be doing business here. You must register
with the state and pay taxes even if incorporated in another state. This
tends to makes incorporating in Nevada an expensive option since you have
to pay fees twice.

If you are caught “doing business” in California without having
registered, you can be in for a rough time. Initially, back taxes and
fees come due. You are also going to be fined and probably suspended from
doing business until an audit can occur. The California Employment
Development Department may levy back taxes and penalties. Your bank
accounts may be frozen. Let’s look at an example.

The California Franchise Tax Board tends to look at the facts surrounding
a particular situation. Assume I own a Nevada entity for the purpose of
building web sites. I receive e-mail, snail mail and work out of my house
in San Diego. The tax agency is going to take the position that I am
doing business in California. My office is here. I take calls here. I do
the work here. This scenario is going to be very difficult to defend.
Playing out the scenario, I will probably end up going out of business
due to disruptions, stress and the resulting financial burden.
So, can you use Nevada business entities if you are in California?
Absolutely. Typically, you need to use a double incorporation strategy.
Essentially, one entity is in Nevada and another in California. One
entity provides services to the other through a fair value contract, to
wit, you can’t charge $1 an hour for services rendered. The Nevada entity
has to have a business license, office, customary payables such as rent
and the typical items you find with any business. This strategy is
typically used to hold non-tangible business assets such as intellectual
property or patent rights.

California has a brutal business climate. The Governator has promised
relief, but an actor making promises is, well, an actor making promises.
Using Nevada entities can provide relief to your business as long as they
are used correctly.

				
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posted:6/25/2012
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