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Nevada Secretary of State Questions Value of Nevada Shell Corporations

by Douglas Lineberry on October 5, 2011

The use of Nevada corporate entities as an asset protection vehicle has gained ground in the last several years. The selling point of this strategy has been twofold: (1) by using a Nevada entity you somehow import Nevada’s allegedly protective laws into the jurisdiction you are doing business or holding an asset in; and (2) the Nevada entities are often companies that were formed by a promoter months or years in advance before they were sold to you, and that the age somehow provides more protection. The first point is debunked by the internal affairs doctrine (which I will write more on later). The second point was recently debunked by none other than the Nevada Secretary of State.

In early September the Secretary’s Securities Division ordered a Wyoming company to stop selling shell Nevada corporations. The Securities Division stated that selling an existing corporation was the sale of a security by an unlicensed broker or dealer. However, the Chief Administrator of the Securities Division went on to say that they were also concerned about fraudulent and misleading claims regarding the value of shell companies, stating: “Many times when these corporations or LLC’s are sold, the buyer is told that simply because the entity was formed and registered a few years ago, it has more value because it’s an ‘aged’ corporation. Buyers are sometimes told that the aged nature of the entity makes it more valuable for things like getting a line of credit, or just general credibility. It does not, and so that’s a serious misrepresentation.”

The lesson here is something that I’ve told people time and again. It’s not that there is never value to using a corporate entity or trust that is formed outside the state or other jurisdiction you are in. The lesson is that you have to be doing it for the right reason. Out of state and offshore entities and trusts can have a lot of value in an asset protection plan, but if you are inclined to consider using one consult with someone that knows about asset protection and that can help you create a plan that will most effectively address your specific situation.

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