Jacques Luben: With all of the interest in Delaware and Nevada corporations, should every business owner limit himself or herself to incorporating in one of those jurisdictions?Carl Ferandez: In my humble opinion, by no means. If you're a local company that is running a restaurant say in Wilmington, Delaware your choice for your business entity would be Delaware. If it were Maryland where you had your restaurant or whatever business it was that you were undertaking, your choice in that case would also be Maryland. The important aspect of selecting your own state where you're doing business is simply to have yourself as an individual protected. And if you're a corporate entity or limited liability company or limited liability partnership, you would be protected as an individual and your corporate or business entity would be the entity that would be challenged in the event of any liability.
Jacques Luben: So my understanding then is that if you're just operating a normal business with a brick and mortar presence, you would typically want to incorporate in the state where that business is operated?
Carl Ferandez: That's entirely correct, Jacques.
Jacques Luben: Now, let's take it a step further and consider the options of incorporating in Nevada or Delaware, when would that be appropriate?
Carl Ferandez: That would generally arise when you're looking to have more than one location. In that case, you would select a state or the holding company aspect of the business, and by that I mean where your other entities would be say real estate or passive entities that don't require management by the holding company, then you would set up the holding company in the state say, Delaware or Nevada, and we'll discuss the reasons for filing in either one of those states and the operating companies in the states where you wanted to be operating.
Jacques Luben: Say that I had a consulting business or an internet business; would those be logical entities to form in Nevada or Delaware?
Carl Ferandez: They would be logical states for forming limited liability company or a corporation or however you wanted to be structured.
Jacques Luben: And that's because you're doing business around the world and it's not just tied to the state in which you are actually physically located?
Carl Ferandez: That's correct. What you would do, in a sense they would be regarded as passive entities, you would establish your holding company in Delaware or Nevada you wish to have operating companies located wherever it is that you wish to have them located.
Jacques Luben: Now, in the case of an internet company --
Carl Ferandez: Well, you may just wish to have that one company; the internet company would not need a holding company.
Jacques Luben: Now would it then follow that a Delaware corporation or a Nevada corporation would be well advised to establish a Delaware or Nevada bank account for that corporation?
Carl Ferandez: It definitely would be well advised. In the case of Nevada where you have no corporate tax and you have no franchise tax, you would be well advised to form your entity in the state of Nevada. In Delaware where you would not be talking so much as a holding company, your internet company would be strictly an operating company; you would be subject to state tax.
Jacques Luben: The benefit of having a bank account in those locations would be what?
Carl Ferandez: The benefit is that you can declare your tax status, your tax domicile, that's where you would want to be taxed, wherever you had established your bank account.
Jacques Luben: In terms of privacy there's been a lot of discussion, a lot of debate a lot of controversy over the fact that Delaware and Nevada clearly offer more privacy than the other 48 states, do you agree with that statement, and if so, which would you recommend in terms of offering the most privacy, Delaware or Nevada?
Carl Ferandez: Again, in my own opinion I'm convinced that Delaware offers more privacy than any other state in the union for several reasons, not the least of which is that companies that provide important corporation services such as yours, can incorporate the corporation or the limited liability company without declaring the names of the directors. So that at least for some period, a Delaware business entity, alternative entity as they're called, would be filed of record without the names of the directors. In Nevada, it's my understanding, I'm not a member of the Nevada Bar, but as you mentioned at the outset, we do have an office, substantial office, in Las Vegas, you're required to disclose the names of the directors, it's an absolute requirement under the Nevada law.
Jacques Luben: I just want to finish up on a point that you made earlier about the fact that in Nevada, the directors are disclosed as opposed to Delaware where they are not. My understanding then is that in Delaware, if one were to go to the Secretary of State and ask specific questions about a corporation or a limited liability, the party that was enquiring would get very little information, is that correct?
Carl Ferandez: That's exactly right Jacques. In Delaware what they would have access to if a party's is making inquiry would have access to would be, in the case of a limited liability company, something called a certificate of formation and in the case of a corporation, something called the certificate of incorporation. Neither one of those would have to have disclosed the names of the directors or the members of the limited liability company.
Jacques Luben: So to summarize, Delaware on balance offers more privacy than Nevada?
Carl Ferandez: That's correct.
Jacques Luben: A lot of our clients come to use from other countries. We try to advise them as best we can about the best form of incorporation that they should consider and we also often advise them that Nevada and Delaware are perfect for them given the fact that the business owners are generally non-resident aliens who are not operating in the U.S. and who do not have Social Security numbers. Do you think that's good advice?
Carl Ferandez: That's perfectly good advice. In Delaware, you do not need to be a citizen of the United States to form a corporation and neither do you have to be a citizen of the United States to form a corporation in Nevada. All you have to do is pay the filing fees. The filing fees are relatively the same in both states. Delaware is still the least expensive, in terms of filing, and it's a minimum of $50 to form a limited liability company or a corporation and a minimum to file in Nevada is $150, but you're not talking much money in either case.
Jacques Luben: Now, limited liability companies seem to be preferred by a lot of these offshore business owners because if they do not have a Social Security number, they can still be principals in a limited liability company, is that your understanding?
Carl Ferandez: That's correct. The need for a Social Security number arises when you need to pay U.S. taxes and then you make an application for an EIN number with the Internal Revenue Service, but if you don't need to pay U.S. taxes, then there is not even a need for an EIN number.
Jacques Luben: Carl, how would you describe the climate for litigation in Delaware?
Carl Ferandez: Well, I can only repeat what has been said by the U.S. Chamber of Commerce who conducted a survey in 2001 and they regard Delaware as having the most fair and reasonable litigation environment of all 50 states.
Jacques Luben: Well, Carl, I want to thank you. What we're finding is that there is a lot of interest in Nevada corporations, there is a lot of interest in establishing businesses in Delaware. And our role is not to advise people specifically from a tax or legal point of view, but simply to present the information as we receive it and to access the knowledge of attorneys like Carl Fernandez who have a lot of experience in this area. I welcome the listeners on our website to send us emails and ask any questions that they have. And we will answer them if it's appropriate, if not, we will contact Carl and ask him to give us an answer, which we will them forward on to our clients. Carl, thank you so much for joining us this evening.
Carl Ferandez: Thank you Jacques and we'll be happy to work with you.
