PRIVACY and Nevada Corporations

PRIVACY

The subject of privacy available through the proper operation of a Nevada corporation is so often misunderstood that we refer to it as the greatest secret.  Many professionals simply cannot seem to get their minds around the FACT that it is entirely possible to CONTROL a corporation here while maintaining a private profile. This is certainly not the case in other states, however, as many informed individuals from places like Washington D.C., Hollywood and Texas have availed themselves of Nevada's sheltering corporate statutes.

PRIVACY has been made inherent in Nevada’s corporate statutes. Nevada statutes:

1. Do not require disclosure of the stockholders;
2. Do not disallow the use of “bearer” shares;
3. Do not require the issuance of stock;
4. Allow for a debt-holder to have all the rights of a stockholder;
5. Do not require the holding of annual meetings of the stockholders in cases where no stockholders exist;
6. Do impose strict sanctions against non-stockholders who attempt to inspect corporate documents, or who would attempt to use them for any nefarious purpose:

NRS 78.257 Right of stockholders to inspect and audit financial records; exceptions.

1. Any person who has been a stockholder of record of any corporation and owns not less than 15 percent of all of the issued and outstanding shares of the stock of such corporation or has been authorized in writing by the holders of at least 15 percent of all its issued and outstanding shares, upon at least 5 days' written demand, is entitled to inspect in person or by agent or attorney, during normal business hours, the books of account and all financial records of the corporation, to make extracts therefrom, and to conduct an audit of such records. Holders of voting trust certificates representing 15 percent of the issued and outstanding shares of the corporation shall be regarded as stockholders for the purpose of this subsection. The right of stockholders to inspect the corporate records may not be limited in the articles or bylaws of any corporation.

2. All costs for making extracts of records or conducting an audit must be borne by the person exercising rights under subsection 1.

3. The rights authorized by subsection 1 may be denied to any stockholder upon his refusal to furnish the corporation an affidavit that such inspection, extracts or audit is not desired for any purpose not related to his interest in the corporation as a stockholder. Any stockholder or other person, exercising rights under subsection 1, who uses or attempts to use information, documents, records or other data obtained from the corporation, for any purpose not related to the stockholder's interest in the corporation as a stockholder, is guilty of a gross misdemeanor. ...

A gross misdemeanor conviction could result in punishment by incarceration for up to one year in the county jail AND a $2,000 fine.  And please note that this statute spells out rights of the stockholders to inspect corporate records—the stockholders, not “just anyone”. There is no mandate of any kind for non-stockholders to ever inspect any corporate records.  It is a gross misdemeanor for any non-stockholder to even attempt to use information from the corporate records in any way contrary to the interests of the stockholders.

While NRS 78.105 requires the corporation to keep certain records at its registered office, the stated purpose is that such records are to be available for inspection by stockholders.  What if there are no stockholders? Should those records be there, where someone may try to access them for purposes that are not in the best interest of the corporation, in violation of NRS 78.257?  What should a well-intentioned director of a corporation that has not issued stock do?

When Is an Owner NOT a Stockholder?

If you own part (or all) of a corporation, you’re a stockholder, right?  In Nevada, the answer to that question is, “Not necessarily.” Let’s look at another unique provision of Nevada corporate law:

NRS 78.197 Rights of persons holding obligations of corporation. 

A corporation may provide in its articles of incorporation that the holder of a bond, debenture or other obligation of the corporation may have any of the rights of a stockholder in the corporation.

With this provision in your Articles of Incorporation, you “may have any of the rights of a stockholder”—without owning stock! Thus, the holder of a note COULD own the corporation and could even be afforded the same VOTING RIGHTS as a stockholder—without being a stockholder.

If this provision is NOT in your current Articles of Incorporation, check and see if this clause, or one like it, is:

ARTICLE VIII—AMENDMENTS

Except with respect to amending the non-assessability of shares per Article IV, this corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation or its Bylaws in the manner now or hereafter prescribed by statute or by these Articles of Incorporation or by the corporation’s Bylaws, and all rights conferred upon the stockholders are granted subject to this reservation.

If so, the corporation may “amend... these Articles of Incorporation... in the manner prescribed by... the corporation’s Bylaws”. In other words, the Articles of Incorporation are modified by the Bylaws.  If this provision exists in your Articles, we suggest that you amend the Bylaws to reflect wording such as NRS 78.197 suggests for the Articles of Incorporation.

If neither of these provisions exists in your corporation’s Articles, you might want to file an Amendment of the Articles of Incorporation.  We can handle such a filing with the Secretary of State for you, just ask.

There is, of course, a great deal more to the Nevada Revised Statutes, Chapter 78, relating to C corporations but it is not our intent to put detailed analysis of every provision on this site.  We merely want to provide an overview of certain key elements.  Click on any of the navigational buttons below to continue your study of PRIVACY:

Once you have read through this section relating to various privacy aspects, we suggest you check out this link to the Greatest Secret where, building on the knowledge presented in this section we show, step by step, how privacy can be maintained.

Nominee Service—Officers and Directors “In Name Only”

The use of what is commonly called “nominee service” has been an accepted practice in the State of Nevada for something like 75 years. Typically, this service—offered by most of the largest and most well-established resident agents in the state—provides the name and signature of a nominee on the annual list of officers filed with the Secretary of State, the only—NRS-mandated—public record of the corporation.  The use of nominee service is inherent in many of the strategies presented in THE NEVADA CORPORATION MANUAL.

Nominee Stockholders

The use of nominee stockholders is far less common (to our knowledge) but the flexibility of this device enables strategies that would otherwise be considered “impossible”. Many regulations aimed at determining a corporation’s status are determined on the basis of ownership.  In Nevada, it is relatively easy for the real owner(s) of a corporation to enjoy privacy of ownership:  For any matter of record, the corporation’s stock may be held by any number of “outside” entities—persons or corporations.

Let’s say you have a half-dozen or more good and trustworthy friends, some or all of whom might desire a reciprocal “favor”. Do you suppose they would mind holding stock in your corporation, covered by a side agreement whereby you could vote the stock at any meetings and repurchase the stock on demand for a nominal price?  The reason this works in Nevada is that stockholders are not a matter of public record, as explained previously.

Is it OK to do business privately? Any contract, agreement or covenant that does not involve knowledge of wrongdoing or criminal intent would certainly seem to be within the boundaries of the law. And if one can act within the law and accomplish good or even great purposes why not?

The combination of powerful privacy aspects discussed above has created a virtual offshore haven onshore, right here in Nevada.  And the great strength of this location is that the many powerful people who established this structure to suit their own purposes in the first place are not about to have their cover blown away by the establishment of any precedent that could adversely affect their own well-being!  (See Rowland v. Lepire for some confirmation of this statement.)

Irrevocable Proxies

Another technique used to control corporations is the use of irrevocable proxies—the right to vote the stock held by “someone else”. You have to be careful when using such proxies, however, as certain regulations contain wording such as, “who owns or controls the voting rights of stock”.  In such cases, perhaps the best approach is to use the concept but “seal the deal” with a handshake instead of putting it in writing.  This can work especially well in situations where the other participants have similar needs of their own.

Debt Holders

Nevada’s corporate statute: NRS 78.197 allows a debt holder to have all of the rights of a stockholder, setting up the situation where a corporation which has not even issued shares could in fact be owned by a debt holder, who would be entitled to call for a “shareholders” meeting and to VOTE.

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Xtreme Business Solutions, Inc.
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Las Vegas, Nevada  89121
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