Starting An LLC in Nevada: Insights Beyond the Elon Musk Effect

Nevada is rapidly emerging as an excellent alternative to Delaware, the country’s incorporation capital. 

Data from the Secretary of State’s office reveals that over 108,000 entities were registered in 2023 alone. While most of these new registrations are small businesses, most people attribute this exponential growth to TESLA CEO Elon Musk. 

Musk made waves earlier this year after publicly endorsing Nevada as a prime location for business incorporation. While the tech magnate’s recommendation increased the state’s growing popularity, it would be unfair to say that he is solely responsible for Nevada’s rise as an incorporation hotspot.

In this blog, we’ll discuss the different influences driving small business owners to the beautiful Silver State and explore the benefits of starting an LLC in Nevada. 

The Elon Musk Effect

On January 30, Elon Musk posted on his social media platform, X, that he “recommends incorporating in Nevada or Texas if you prefer shareholders to decide matters.”

This comes after the Delaware Court of Chancery ruled against him in a shareholder lawsuit centered around his $55 billion compensation. Chancery Court Judge Kathaleen McCormick released a judgment ordering that the pay package be voided.

Since the ruling, Musk has emphasized his disappointment with Delaware and its rigid laws. 

Over the years, the state has changed its legal standards for transactions between public companies and their shareholders. 

Lawmakers have also scrutinized the fairness of its Chancery Court, which has caused other high-profile entrepreneurs like Musk to rethink their location. 

One example is Tripadvisor Inc. shareholder Greg Maffei, who expressed his intent to move to Nevada last year. Although other shareholders have filed a lawsuit against him, a Delaware judge has ruled in his favor, allowing him to reincorporate the company in the Silver State. 

This rising trend of major companies moving to Nevada led people to believe it was the “Elon Musk effect.” But local industry members in Nevada suggest otherwise. 

Factors Driving Nevada’s Growing Popularity

Delaware has dominated the landscape of corporate America for years. With business-friendly tax policies and an experienced business court, it’s no surprise that around 68.2% of Fortune 500 companies are in the First State. 

But some states are trying to challenge its position, with Nevada being one of the strongest contenders. Corporate Law Professor Benjamin Edwards says, “If we’re running a race, Delaware is in the lead, but Nevada is second.”

Recent events have highlighted the flaws in Delaware’s legal framework. The Chancery Court’s ruling on Musk’s compensation package emphasized Delaware’s focus on preserving shareholder value. What made Nevada a better option is that its laws offer officers stronger protections. 

Michael Bonner, a Las Vegas shareholder at Greenberg Traurig LLP, says, “What Nevada did is we went further than Delaware, and it’s one of those reasons why people are actively considering Nevada over Delaware these days.”

Other industry members share Bonner’s sentiments. In a statement published in the Las Vegas Review-Journal, NCH CEO and founder Cort Christie said that liability protection is the primary reason why small businesses prefer Nevada. 

She says, “It’s kind of like all of us can choose the levels of auto insurance that we want, and we’re broke.” 

“We’re going to choose the lowest limits to save as much money as possible. But we all know that if you get into a bad accident, there can be risks and potential lawsuits, so you want to be properly insured.”

Aside from a greater liability shield, other business entities choose Nevada for its low filing fees. Laird Superfood, a plant-based food producer in Boulder, Colorado, reincorporated in the Silver State last year. 

The company gained its investors’ support after telling them they’re expected to pay around $200,00 in Delaware taxes for that fiscal year. Since Nevada has no corporate taxes, Laird only has to pay its annual fees of around $700.

These benefits are some of the factors driving Nevada’s popularity among entrepreneurs. While it’s true that high-profile business owners like Elon Musk have a major impact on the state’s reputation and attractiveness, the cumulative effect of these advantages will draw more people to Nevada’s shores in the long run. 

Secretary of State Cisco Aguilar explains, “Once they realize the benefits of incorporating in Nevada, they’ll start to realize how supportive Nevada is of businesses and their growth.”

Benefits of Starting An LLC in Nevada

Besides strong liability protections and low filing fees, there are other benefits to starting an LLC in Nevada, such as:

Flexible Ownership & Management

There’s no restriction on the number of members a Nevada LLC can have. Moreover, they can adopt any management structure they want. 

Unlike corporations, Nevada LLCs are not required to have a board of directors or a set of officers. Instead, they are free to choose whether or not their members will manage the company. 

Easy to Form

To make incorporation easier, Nevada has streamlined its process for forming LLCs. This means small business owners can get their LLCs up and running quickly. 

Easy to Maintain

Another benefit of forming a Nevada LLC is its easy maintenance. Unlike corporations, LLCs are not required to hold annual meetings or maintain accurate minutes. All LLCs must do is file their annual report with the Secretary of State. 

Ability to Raise Funding

Forming a Nevada LLC makes raising funding and capital much easier. Other structures, like sole proprietorships or general partnerships, can only take on investors if they make them partners. However, Nevada LLCs can add new members and limit their management rights. 

Membership interests in LLCs are typically determined by their Operating Agreement. So, if an LLC wants passive investors, they can limit the control that they’ll have over the company. 

Form A Nevada LLC Today

Ultimately, Elon Musk’s tweet has shifted the public’s focus on Nevada as a favorable destination for incorporation. However, Nevada’s appeal extends far beyond his endorsement. 

The state has strived to create its corporate haven that combines strong legal protections and favorable tax policies. While Delaware has long been the go-to state for incorporation, Nevada is positioning itself as a strong competitor. 

If you need help starting your own Nevada LLC, NCH is here to help. 

NCH is one of Nevada’s leading business formation service providers. Having an expert by your side can mean a lot regarding incorporation. Our business specialists will guide you through the incorporation process, ensuring you understand the legal requirements and implications of forming an LLC in Nevada. 

With our help, you can navigate potential pitfalls and maximize the benefits of incorporating in Nevada.

Discover the benefits of starting a business in Nevada, and talk to us today. To learn more about our services, visit our website here or call us at 1-800-508-1729 to schedule a consultation.

Disclaimer: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.