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Bearer Shares, LLC's and Nevada…

By John Dietz - Email Editor

Date: 21-July-2005

Dear Valued Reader,

We have been communicating about the primary steps in protecting your world. Your responses have been great. However, I would like to answer two recurring questions: What is the correct entity for me, and in what jurisdiction?

While there are many business friendly states, we recommend a no obligation consultation with a Trustmakers professional about your specific situation. Your own personal situation, such as marital status and job, are major influences to decide what's best for you. Having said that, I can say beyond a shadow of a doubt that it's not important where you go, as where you don't go!

A recent client demanded a Nevada LLC. Curiously, I asked “Do you live in Nevada?”
Answer: “ No”
My response: “Why would you want a Nevada LLC?”
Answer: “ I heard there great for asset protection and they have no sales tax!”

The business friendly state of Nevada is wonderful.... if you live in Nevada. However, if you're a shopkeeper in Ohio and sell your wares in Ohio, you owe Ohio sales tax, period!

One of the main reasons people use Nevada entities are for bearer shares. One of my clients calls them ”hot potato shares”.

These bearer shares are exactly what they say. In theory, whoever has possession of them is the owner. The origins of these go back to old Europe, and even today banks still maintain vaults of them. Bearer shares are as old as the concept of all companies. In fact, it was the normal way in which ownership rights were established. Generally the certificate, having no investor's name recorded, was deemed to be owned by the person possessing the certificate or, in other words, the bearer. The bank held the shares behind very thick walls while the owner had access to it at any time when the bank was open. This was a good checks and balances system. These shares were the same as bank notes in your pocket. If you possessed them, you could spend them. At some point in time, listing the name of the owner on the shares became normal practice until, eventually, most countries and many US states no longer permit the issue of bearer shares.

Rob Lambert on Nevada Corp. and Bearer shares:
Promoters of Nevada Corporations use "bearer shares" to obfuscate ownership. They say no creditor can tell that you really own the assets in the corporation. They also boast that the Nevada Corporation is tax free. This is pure BULL. First, somebody owns the stock. If the "front man" they put in place to hold the stock actually owns the stock then Mr. Front man can take the assets of the corporation. This is black letter law; the holder of "bearer Stock" is the owner.... unless the "front man" is acting on your behalf. In this case the front man is your agent. This is simple to discover in a debtor's exam.

Remember, this exam is under penalty of perjury (again, you either tell the truth or become Bubba's Roommate). So to preserve the asset protection you need to lie. If you tell the truth, the creditor gets the assets. If you lie and get caught, it's stock up on the Vaseline and pay Bubba a visit. Neither are attractive alternatives.

Second, who pays the tax and the tax preparation? Don't forget, this is discoverable. If it's an S corporation, then the trail leads to you. If not, then Mister Strawman holding your stock is in control of the corporation and can pocket the assets and leave you holding nothing but an empty lawsuit against a person who certainly did NOT use Nevada Corporations as an asset protection vehicle.

Third, don't forget the Full Faith and Credit Clause of the US Constitution. Nevada is REQUIRED to recognize and ENFORCE judgments in all of the other 49 states, without question.

Fourth, the promoters of Nevada Corporations push the tax free nature of these entities. B-U-L-L. They forget the Unitary Tax rules. If the assets in the Nevada Corporation are really a Burger King in California; believe me, California will get its fair share of tax.

Finally, people who do this Nevada Corporation Scam and then come to me for real asset protection once the judgments are starting to crowd them are always too late. They are the owners of the assets put into the Nevada Corporation and any transfer of these assets into a truly protected environment is NOTHING BUT a FRAUDULENT CONVEYANCE.

I think this was important enough to repeat. So what is the best thing to do? While the stealth idea of Nevada corps makes sense, it may not be the best fit. What about forming an Anonymous LLC in a jurisdiction that doesn't have the stigma that Nevada has. It's legal, and it offers a great amount of stealth. It will still be disclosed in a debtor's exam and will not offer any tax savings. But it does provide another barrier to a creditor entering your inner sanctum.

This is the main point of asset protection. There is no bullet proof asset protection program. Protecting assets is a game of chess in which the best player wins and gets—or keeps—the prize. The person who wrote bullet proof doesn't know the other side has armor piercing bullets.

We have much more to discuss on LLC's and the right way to set them up. Until next time....

Until next time,

John

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