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Wealthy & Wise: Nevada Law Protects Nevada LLCs and Corporations

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July 28, 2023
Author: NCH

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About the Video: Nevada Law Protects Nevada LLCs and Corporations

Nevada statutes provide robust protections for business owners who choose to form Nevada Limited Liability Companies (LLCs) and Corporations. One of the key advantages is the strong shield of limited liability, which safeguards owners’ personal assets from the company’s debts and legal liabilities. This means that in the event of lawsuits or financial challenges faced by the business, the individual owners’ personal assets, such as homes or savings, are generally shielded from potential claims. Additionally, Nevada’s business-friendly environment offers tax advantages, including no state corporate income tax or personal income tax. Moreover, the state’s privacy laws allow business owners to maintain a greater level of anonymity, as they don’t require the disclosure of names in public records. Overall, these statutes make Nevada a favorable choice for entrepreneurs seeking to protect their assets and enjoy a more advantageous tax and legal framework for their LLCs and Corporations.

Prefer to read? A full transcript is provided below.

Cort:

Hello and welcome to another edition of Wealthy and Wise. I’m your host, Cort Christie. And today we’re going to be talking about Nevada laws, Nevada cases that make Nevada so unique when it comes to setting up an LLC for people that live in Nevada and people that don’t live in Nevada that want to take advantage of these amazing laws to protect you, the business owner and the investor from personal liability in your affairs. And I have with me today the one the only, Kurt Harris, of the Harris Law Group. And Kurt, welcome to the program.

Kurt:

Thank you. Cort, it’s great to be here again.

Cort:

Yeah, and I’m just excited to talk about laws and caselaw and all the stuff that, you know, makes, you know, the Nevada LLC so special, which I’m sure a lot of our listeners are going to just absolutely tune out because this sounds like, you know, a lot of work listening to case law. But I know you’re going to make it fun and interesting, like you always do.

Kurt:

I’ll do my best.

Cort:

All right. So, let’s start with the overriding, you know, background to this is Nevada and its legislature have developed some really cool laws over the year that are different from every other state that’s out there that set Nevada apart. Can you kind of give us some background on that?

Kurt:

Sure. Without a doubt. Early on in the eighties, the legislature here in Nevada decided that they wanted to bring more business here to the state of Nevada. They kind of wanted to become the Delaware of the West, as it were. And so, they went to work and they developed some statutes and a statutory scheme that would be more favorable towards businesses, particularly LLCs here in Nevada, the limited liability company. But in addition to that, they also put in some very favorable shareholder liability laws here in the state of Nevada with regard to corporations and other corporations. So, they developed a very favorable place where it eliminated many of the creditor’s rights towards those individuals that were in corporations or that were members of companies.

Cort:

Interesting. Now, for people that are listening and thinking about, you know, they were trying to create a set of laws to favor business owners and then kind of become the Delaware of the West. What’s the, what incentive does a state have to do this?

Kurt:

Well, they were thinking that maybe they well, they needed more business here in Nevada at the time, back in the eighties. And they were trying to draw new business here. They were trying to draw individuals here and so what they did was they formed particularly the N.R.S. Chapter 86, which is the LLC law that provided for limited liability companies to be set up here and to have very favorable treatment. In addition to that, they have relied upon those, that body of law through numerous cases that have upheld and have kind of supported the business and the members of the businesses and protected them here in the state of Nevada from litigation, many of which the litigation was frivolous. But yes, they did uphold those laws and continue to do so.

Cort:

And what’s so interesting is, you know, since the eighties, you think of the growth rate of the state of Nevada, it’s been exponential where other states like California have been losing populations just in the last maybe five years. You know, Nevada just continues to grow and grow because it’s such a business-friendly state. But for those people that are listening, they might be living in Utah or Idaho or Florida, you know, what’s the advantage to them? Do they get to take advantage of these cool laws?

Kurt:

Yes, they do. And obviously, I’m very, very biased towards Nevada. This is where I practice. But they do get to take advantage of our laws here in Nevada. If they use a Nevada LLC that is used wherever they happen to be practicing or wherever they happen to have their business, they can they incorporate a Nevada LLC, and ultimately, they can run their business here out of Nevada and they can take advantage of all these same protections. Here in Clark County, which is where Las Vegas is at, Las Vegas and Henderson, I should say now in North Las Vegas, we actually have business courts that they’ve set up to deal with just businesses, one business against another. Business which also has helped to utilize our statutory scheme and to implement that with more efficiency here when the cases do come around.

Cort:

And having a business court is a really big deal. I know Delaware has a specialty court for business as well and it means you’re not getting in front of a judge that you know the case before you they’re dealing with a squabble between two neighbors over a fence line or dogs barking or something like that. You’ve got real business issues in front of a judge that understands business.

Kurt:

Yes. You couldn’t be more correct. This judge has seen many shareholder cases, has seen many dissolution cases, and has seen many cases where companies have sued other companies. So, these judges are very familiar with it and they’re very used to it in their courtrooms.

Cort:

And that means a lot for those of you that are listening that, you know, I don’t know if the listeners have been in front of a judge before, but getting a competent judge sometimes can be a real challenge. And having the judge that’s understanding of business matters and business issues and these laws is a really big deal because you do not want a judge that just got elected last week and all of a sudden is trying to deal with complex matters of business. That is not generally good for a business owner. I will say that myself, because I’ve seen a lot of that from our clients over the years in other states. So…

Kurt:

Yeah.

Cort:

But I think one of the important points here, Kurt, that you’re making is you could live anywhere and form a Nevada business entity and gain some of these benefits even when you’re operating that LLC that was formed in Nevada, in Texas, in New York and anywhere and there’s elements of that law that we have here, the set of laws that protect you, the business owner. So, how about the cases that support, you know, these laws? It’s one thing as we talk about the special court system that’s set up for, you know, business owners here in Clark County, it’s all about the case law as well. And I think if we talk about, you know, what are the situations, first of all, that someone can sue a business owner and actually go after their personal assets? What’s the framework of that law here in Nevada? And then what are some of the cases that you know of that have kind of helped support that or diminish that in any way?

Kurt:

Well, without a doubt, many of these cases, they begin with a breach of contract or some other thing that is arisen towards an LLC that may be operating anywhere in the nation. And ultimately it finds its way back here to Nevada. It may find its way back here in Nevada because they’ve obtained a judgment elsewhere or because it’s been drug essentially back here in Nevada to be litigated here, because this is who you’ve dealt with, the Nevada company. In Nevada, we have the charging order protection, which is the sole remedy for any creditor, and that sometimes glazes people’s eyes over. The charging order means that you have to get a judgment against the company. And once you’ve obtained that judgment, your only remedy to collect on that judgment is what they call a charging order. It’s an order from the court that charges the profits of that company in the future. And so, you would only be as a creditor, you could only get at the profits of the company. And it can be very difficult to exercise your rights under those charging orders. In Nevada, specifically, even a single member LLC, even an LLC, a company that’s a single person, that sole remedy is still only a charging order as against a single person. You really don’t find that remedy in many of the other states. I would say the other 48 states. I think Wyoming may employ that now, but single member charging water protection is pretty exclusive to the state of Nevada and Wyoming. And so that provides a huge benefit where all you can do is get a judgment and then proceed against the profits of the company. In addition to that, you really don’t get to get at the members. The members of the LLC, are not liable for the debts of the LLC unless there is some fraud or manifest injustice that may arise as a result of that claim. You can’t get at those particular assets of an individual member. We have many cases here in Nevada that are upheld that. Essentially said, no, you can’t pierce the corporate veil absent fraud or manifest injustice. And that has played out over and over in our courts. And it really hasn’t been cast down quite yet, hasn’t been breached. We’ve had a recent case that said something similar that a lot of people are pointing to and saying, well, look, the corporate veil was pierced, but it really wasn’t. When you looked at what occurred there, it was a manifest injustice situation which is contemplated under the statute.

Cort:

And for those people listening, can you explain what you know, where fraud comes into play? And is that a high hurdle to prove by a court? And, you know, how does that, what are the cases where that might be upheld?

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Kurt:

Yeah, I mean, fraud really has to be pled in your complaint, in your action. It has to be pled with specificity. They call it under our rule and rule nine. You have to say essentially the time, place, the manner, everything that occurred that brought about this fraud. You just can’t throw the word out. You really have to show that there was fraud that occurred. And part of that demonstration is that you have to show intent at the time with the individual that you were dealing with or the company you were dealing with to commit a fraud against you or to take away your funds without delivering on that. And so, it’s very difficult. And the burden of proof on fraud is very difficult to prove. And so, piercing the corporate veil on a fraud claim is essentially saying that this person had put together this LLC for the purpose of stealing my money, that that was the sole purpose that they had arranged. And so, that’s really the only way I can prevail on a fraud claim and then pierce the corporate veil and to get at the personal assets of the member of the LLC. Other than that, my sole remedy is the charging order again. And the Nevada case law have upheld that over and over.

Cort:

And I think when you describe fraud, right, you know, it has to be very specific where the fraud happened and how it occurred. But could it be something that, you know, a business owner could trip over by mistake, or is it something where they knew full well what they were doing?

Kurt:

Yeah, unfortunately or fortunately, it depends upon if you want to make a fraud case, it has to be intentional.

Cort:

Okay.

Kurt:

The fraud has to be intentional. There’s no such thing as a negligent fraud.

Cort:

Okay.

Kurt:

You can’t negligently commit fraud. You really have to set up the sole purpose of committing a fraud, essentially stealing funds, or to put together what they call the artifice. I think that’s what our laws call that, to set up a structure that is to take money without delivering, kind of a Ponzi scheme or something like that, where you have to show the sole intent was to do that. Or, somewhere along the lines the intent became to do that, you know, that they realized they could no longer deliver on what they were promising, but continued to derive funds or income from that without coming clean on it. And so, yeah, very difficult to prove fraud. And then manifest injustice is also very difficult where you essentially have to show that individuals make decisions or determinations that were not in the best interests of the LLC and did something that exposed the LLC to a lawsuit or something like that. And so, they could set aside for that very purpose, but only those types of purposes.

Cort:

Interesting. And so, talk about the Supreme Court in Nevada, you know, is kind of where the last appeal can go. And we have a structure here where we don’t have an appellate level. So, the Supreme Court is the appellate level here, which is maybe better in many ways in some states that, you know, have an appellate level. And then you go to the Supreme Court, it’s much simpler because we’re a smaller state. It’s easier. There’s not as much caseload as many states. You know, where does that, where does the Supreme Court stand on this pro-business attitude that Nevada has?

Kurt:

Well, they’ve still been very pro-business with their rulings. Even recently, we had a case that came out just last week where there had been a lawsuit against a Series LLC, which was a series of LLCs that are people linked together. Many real estate investors like to use those many other individuals like Series LLCs for investments. And someone from out of state brought a suit against a Nevada LLC, that was a Series LLC. But they didn’t name the individual LLC that held the asset. They just named the Master LLC, thinking, well, I can just lump them all into one because that’s what I do in my state. Our Supreme Court said, no, you need to name that individual LLC and you need to name what individually occurred within that LLC, not just some general allegation with regard to a master LLC. And so, our courts have been very supportive of the statutory scheme. And as you mentioned, you get, when you appeal from the District Court, you get to straight go to the Supreme Court in Nevada and because we don’t really have an appellate division intermediary between the two. So, you get straight to the Supreme Court. And as a result of that, we have not a lot of case law, and they’re very supportive of the statutes. And so, the statutes are there. You just need to read the rule, read the law, and that’s the way it is. And they pretty much hold them for the most part. It generally, they don’t set those statutes aside very, very often.

Cort:

Yeah.

Kurt:

And so you’re just not going to see that very often where they set it aside. So, most of our law is embodied and encapsulated in the statutes, and as long as you read them and follow them, for the most part, they won’t be set aside on appeal.

Cort:

And I think what’s so important about that, too, another element is, you know, as our viewers are wondering about this Nevada thing and why it’s so special and unique is, Nevada is really the gold standard for asset protection. Using LLCs and corporations to protect you, the business owner or the investor that might have assets that you placed inside an LLC and when you might have somebody that’s gunning for your business or your assets, an attorney that’s wanting to pierce that entity, go after you, take your assets away and kind of make a bigger case out of it. In Nevada, it’s quite simple. Like, for instance, if they lost in the business court and they weren’t satisfied with that, they don’t get to spend a lot of your money as litigating. They go right to the Supreme Court, the next, if they weren’t happy with the decision. Where again, in other states they might end up in appellate level, spending money and grinding the case out again, if they weren’t satisfied with the outcome of the first case. So, you can think of it as a simpler model, as a more efficient model from a cost perspective, from litigation. And, you know, you make sure that you get right to the people that really, really understand our laws, the Supreme Court, more quickly, if there was ever anything that wasn’t in your favor. And I believe our Supreme Court has overturned some lower court rulings that didn’t protect the integrity of the statutes or laws that we have on the books here as well. Is that right?

Kurt:

That’s very correct, yes. On many appeals that have gone up generally that those appeals are denied, I would say, or the lower court’s judgment would be reversed if they were to take an opposing view to what the statute indicates at this point If it isn’t pretty crystal clear or it’s an area that is new to the court or first impression, as they call it, for the most part, those appeals are not very promising. One of the other things that Nevada requires is that if I take an appeal up from a judgment that I disagree with, that was kind of my shaky judgment anyway, I’m going to have to pay a bond before I make my appeal. Our Supreme Court requires that. And so, whatever the judgment was against me, I have to post a bond pretty much in that amount. And so, if you don’t prevail on appeal, then the party that’s being appealed or the respondent, as they say, will be able to get at the money by the bond, which makes their collecting their judgment much easier. And so, we’re still very pro-business and we’re still very concerned about businesses coming here, relocating here and doing their business here in the state of Nevada. It’s still very important here.

Cort:

Interesting. So, well, thank you. That gives people some perspective on this gold standard of asset protection that Nevada LLCs have and that whether you want to move to Nevada someday or not, you can take advantage of the Nevada laws by setting up a business entity in Nevada and operating it elsewhere. And Kurt, you’ve given us some great insight into how our laws are different, how the cases have supported it, how the court system and the Supreme Court have made sure to maintain the integrity of what we have here in Nevada, which makes it so special. So, thanks for coming on today.

Kurt:

Thank you.

Cort:

Absolutely. And for those of you listening, thanks for tuning in to another edition of Wealthy and Wise. I’m your host, Cort Christie and we represent NCH, a company that’s here to help you take advantage of Nevada LLCs and corporations. We have a whole team that have legal professionals, like Kurt here with the Harris Law Group, to help you with advanced planning. We have a tax team to help you make sure that you get your tax returns and accounting done properly. We have a full one stop shop for all your needs of starting, registering and launching your business, as well as making sure your business gets registered in your home state properly. We do it all for you. We kind of consider ourselves a white glove service, so that you don’t have to piece this all together. You’ve got one place to get it all done and get it done right. So, thanks again for tuning in. Please like and subscribe and send us your questions or call us for an appointment. We’d be glad to talk to you and there’s no obligations. If you get on a phone call with us, it’s complimentary. It’s for you to explore the benefits of Nevada and what NCH can do for you. So, thanks again for tuning in.

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.

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