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Questions about different entities
What is the difference between INC and LLC?
What is the difference between a "C" and an "S" corporation?
Are there any drawbacks to being an "S" corporation?
What is the difference between an "S" corporation and a Limited Liability Company?
Why incorporate as Close Corporation?
Why incorporate as Close Corporation?
A business in the state of Nevada can be incorporated either under Nevada Revised Statutes Chapter 78 Private Corporations or Nevada Revised Statutes Chapter 78A Close Corporations. In order to file as a close corporation, NRS 78A.020 requires that the number of shareholders shall not exceed 30.
Why incorporate as a close corporation under NRS Chapter 78A? The vast majority of individuals incorporate their businesses in order to limit their liability to their investment in the corporation. Even if a business is incorporated, a shareholders personal assets my still be reached by creditors of the corporation in order to pay the debts of the corporation, including civil judgments against the corporation. This occurs when a court of competent jurisdiction pierces the " corporate veil".
The term corporate veil is a legal "terrm of art" for the state statutory protection limiting the liability of shareholders of a corporation to their investment in the corporation. A court can pierce the corporate veil for various reasons. One of the many reasons for piercing the corporate veil, and the one which is relevant at hand, is when the corporation does not strictly comply with the state's strict statutory requirements for record keeping and the holding of meetings. A business incorporated under NRS Chapter 78 must strictly comply with the record keeping and meeting requirements promulgated under NRS Chapter 78 or risk having its corporate veil pierced by a court in a civil suit. In other words, a close corporation can be operated informally, while a business incorporated under NRS Chapter 78 must be operated formally.
A business incorporated as a close corporation under NRS Chapter 78A does not have to strictly adhere to the record keeping and meeting requirements of NRS Chapter 78. Consequently, a business incorporated under NRS Chapter 78A rather than NRS 78 has less of a chance of having its corporate veil pierced.
Another advantage of incorporating a business under NRS Chapter 78A rather than NRS Chapter 78 is that a close corporation is not required to have a board of directors, the corporation can be directed directly by the shareholders.
It must be pointed out that a business incorporated under NRS Chapter 78A is still governed by those provisions of NRS Chapter 78 which are not inconsistent with NRS Chapter 78A. Also, NRS Chapter 78 places restrictions on the transfer of stock in a close corporation which must be conspicuously printed on the shares of the corporation.
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