Privacy With Nevada Corporations

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For may people, privacy is the primary issue in their financial life.  It seems that in our society, so bent as it is upon litigation and lawsuits, the less people know about your assets, the better off you are.  It is no coincidence that people without significant assets do not get sued nearly as often as those who are perceived as having "deep pockets."  Individuals with any assets at all should anticipate the possibility of being sued during their lifetime.  This is the very reason many people incorporate their business activities.

To protect your assets from the disturbing trend toward frivolous lawsuits, you need a specific plan of action that isolates your assets from yourself.  If someone has no reason to believe that you have access to a million dollars, it is not likely that someone would pursue a million-dollar judgment against you.  If you keep your assets private, you will greatly reduce your chances of being sued.  Certainly no attorney would work on a contingency against you unless they saw some way of getting paid.  Suing poor people has never made an attorney rich.

The Nevada corporation offers many ways to protect your privacy as a stockholder.  To appreciate how this is possible, it is necessary to understand that there are essentially five ways to identify the stockholders of a corporation:

  1. Call the Secretary of State's office (or its equivalent) where the corporation was formed.  In some states, the Secretary of State requires that a list of stockholders, including their capital contribution and the value of their stock be on file.  Often, this information is available over the telephone.
  2. Obtain a copy of the corporation's tax return in that state.  Every state that has a corporate income tax or franchise tax requires that the return be filed on a state-approved form.  It is common for the state income tax return to require a list of stockholders, (particularly when hat state also has a personal income tax.)  This is difficult to get over the phone, but can be accessed, depending upon the state's policy, either through the mail to any individual who asks, or to anyone who has a subpoena for the record.
  3. The corporation's resident agent in the state is required to have information on file regarding the ownership of the stock.  Usually, this means that the corporation is required to provide the resident agent with a copy of the stock ledger for file.  This is not available to just anyone, but a subpoena will have immediate access to it.
  4. The corporation itself maintains the original of the stock ledger.  This ledger contains all the information regarding the amount, type and value of stock owned by each stockholder.  A subpoena can get to any corporate record.
  5. The corporate officers or directors can be deposed under oath about their direct knowledge of the ownership of the corporation.

It can be difficult or impossible to find out who the stock holders are of a Nevada corporation using any of the methods described above.  Let's discuss each of these avenues individually.

First, the only filing required of a Nevada corporation to the Secretary of State is an annual list of officers and directors.  This list represents the only information that the Secretary of State will have regarding the ownership and management of the corporation.  This list is due on the first day of the second month after incorporation, and annually after that.

Although there is room on this list form many names, only five lines need to be filled out.  The required offices that the Secretary of State must have on file include the president, the secretary, the treasurer, at least one director, and resident agent.  The most significant thing about that is the fact that one person may serve in all of those capacities, and is not required to be a stockholder.

If someone calls the Secretary of State in Nevada and requests information on a corporation, they will learn several things.  They will earn whether or not the corporation is in good standing with the state.  They will learn the names of the president, secretary, treasurer, and director (as well as any additional officers which may have been reported, such as vice-president and/or additional directors).  They may learn that all of those positions are filled by the same individual, which usually suggests a one-man corporation, or by several different individuals.  They may discover that the officers and directors appear to have residency in the US, or that conversely, they appear to be citizens of a foreign country.  They have also discovered who the resident agent is, but we'll get to that later.

What they could not learn is significant:

If the list of officers and directors was filed, for instance, on October first, it only represents the officers and directors of the corporation on that date.  It is theoretically possible that the corporation had a meeting on October second, where new officers and directors were elected.  The new officers and directors would not be on public record for a year, if then.

The corporation could conceivably call another meeting the following September and put the original officers and directors back into office in time for the next annual filing.  So, you have no guarantee that the names you found have any relevance to the current situation.

Because Nevada has no corporate income tax, or the inherent bureaucracy that such a tax creates, there are no state corporate tax returns to look at.  The only document the Department of Taxation has, is a filing form for the Nevada Business License Tax, which is not immediately available as a public record, and if it were it would only disclose the number of hours worked by employees of the company.

Let's assume the resident agent for the corporate records has been subpoenaed for the records it has in its possession relating to this particular corporation.  The Nevada resident agent is not required to have a copy of the actual stock ledger on file as its required in most states, instead it is merely required to have a statement that provides the name and address of the person who has the stock ledger in their possession.  The actual stock ledger could be in Sri Lanka, Swaziland, or Senegal.

The law does not require the stock ledger to be in Nevada at any time.  If the corporation so desired, it could force a potential litigant to spend a lot of time and money to pursue that information.  As a creditor, you would have to be asking yourself how much trouble is this all worth.

The corporate secretary is another potential source of stockholder information.  This person has no legal obligation to you to reveal any information at all about the stockholders of the corporation.  In fact, the corporate secretary is not required, or even allowed, to provide that information even to another shareholder unless the shareholder controls enough voting power to force the issue.

NRS 78.257 provides that any stockholder who owns at least 15% of the issued shares of a corporation has a right to inspect all books and records, but must bear the costs of such an inspection.  Minority shareholders with less than 15% ownership do not enjoy this right.

In essence, a potential judgment creditor does not seem to have the ability to access corporate records or documents to suit his interest, unless he is a stockholder, or a criminal investigation warrants it.  If a potential creditor attempts to obtain and use these corporate records for any interest other than a shareholder's, he could face civil penalties.

Beyond those limitations, ultimately the stock of the Nevada corporation may have been issued as bearer shares.  This means that they may be issued and recorded on the stock ledger as having been written to the "bearer" of the certificate.  Perhaps the shares were first issued to the trustee of a voting trust, or care of an attorney, who exercises attorney/client privilege.  In any event, the corporate secretary may have no direct knowledge regarding who currently possesses those shares.