California Businesses Incorporating In Nevada - Is It Legal?Written by Richard A. Chapo
California is a notoriously bad state to do business in. Regulations, worker’s compensation and tax issues overwhelm companies. Seeking relief, many incorporate in Nevada. Unless done carefully, this decision can lead to disaster.
Doing Business - Jurisdiction
Jurisdiction is a legal term used to define who has authority over something. Applied to this article, term refers to issue of which state has right to regulate a business. In California, issue boils down to whether you are considered to be “doing business” in state.
California is one of most aggressive states when it comes to defining jurisdiction. If you maintain offices or have employees in state, you are considered to be doing business here. You must register with state and pay taxes even if incorporated in another state. This tends to makes incorporating in Nevada an expensive option since you have to pay fees twice.
If you are caught “doing business” in California without having registered, you can be in for a rough time. Initially, back taxes and fees come due. You are also going to be fined and probably suspended from doing business until an audit can occur. The California Employment Development Department may levy back taxes and penalties. Your bank accounts may be frozen. Let’s look at an example.
The California Franchise Tax Board tends to look at facts surrounding a particular situation. Assume I own a Nevada entity for purpose of building web sites. I receive e-mail, snail mail and work out of my house in San Diego. The tax agency is going to take position that I am doing business in California. My office is here. I take calls here. I do work here. This scenario is going to be very difficult to defend. Playing out scenario, I will probably end up going out of business due to disruptions, stress and resulting financial burden.
FTC Requires Companies To Destroy Consumer RecordsWritten by Richard A. Chapo
On June 1, 2005, Federal Trade Commission issued new regulations requiring companies to destroy certain consumer records. The specific rule requires consumer information such as credit reports to be physically destroyed after it is used.
The rule covers practically any consumer records. Examples include credit reports, court records, employment histories and rental histories to mention only a few.
Heading complaints from constituents, Congress has been trying to figure out how to deal with growing identity theft problems. In response, FTC rule requires all personal information to be:
3. Shredded, or
Whether you shred records or stand in parking lot with a flamethrower, rule requires documents to be destroyed to extent they cannot be read. Importantly, rule also applies to electronic files.
As an agency rule, new regulation does not result in any criminal penalties. Instead, FTC penalty provisions call for a fine of up to $2,500 per violation. Individuals that have information misused can also seek damages in civil lawsuits.