Earlier this year, Nevada’s Republican-controlled Senate, Republican-controlled Assembly, and Republican Governor passed into law the largest tax increase in Nevada history1)Source. Among many other tax increases, the tax package significantly affects Nevada corporations, while largely leaving other Nevada business types (such as LLCs) alone. Because of the significant financial hit on corporations, many, and possibly most, Nevada corporations should now convert their business entity from a corporation to an LLC. First, we will analyze the cost to do business as a corporation and how the new tax package affects your bottom line. Second, I will provide you with the process to convert a Nevada corporation to an LLC.
The New Nevada Corporation Taxes and Fees
All Nevada business entities, whether a corporation or an LLC or a partnership, etc., are required to file an Annual List with the Secretary of State that includes the names and addresses of the entity’s management. The Annual List is due every year on the anniversary of the incorporation or organization of the entity. Failure to file the Annual List will eventually lead to the Secretary of State revoking the entity’s Charter to do business in Nevada. Prior to the new tax package, the filing fee for the Annual List was $125 for all business entities that are NOT for-profit corporations (such as LLCs, partnerships, etc.). For corporations, however, the annual filing fee ranged from as low as $125 to a maximum of $11,125 depending on the value of the total authorized stock of the corporation.
The new tax package increases the Annual List filing fee to a minimum of $150 for all entities, including corporations and LLCs. However, the filing fee for corporations continues to increase, as previously, depending on the value of the stock. Thus, the tax package does not cause a huge change from the previous fee schedule; basically, an increase of $25 across the board on the bottom end.
However, the new tax package really smacks corporations with the filing fee for the Nevada State Business License. In addition to paying the filing fee for the Annual List, all Nevada business entities2)I say all, but really not all entities are implicated. For instance, non-profit corporations are not issued a State Business License and some other types of entities are exempted from the requirement. must also pay for the Nevada State Business License on an annual basis at the same time as the filing of the Annual List. Prior to the tax increase, the fee for the Business License was $200 across the board for all entities. Now, thanks to the tax hike, the filing fee for Nevada corporations was increased to $500. Meanwhile, the filing fee for LLCs (and other entities) remained at $200. The effect of the tax increases to the Annual List and the State Business License filing fees is that a corporation now must pay a minimum of $650 every year to the State of Nevada for the privilege of doing business in Nevada3)This amount does not include local business license fees charged by cities and counties.. Meanwhile, LLCs pay only $350 total every year.
Governor Sandoval’s new tax plan adds two new reasons4)there are many more to why forming an LLC is preferable to a corporation formation:
(1) the Annual List filing fee for corporations increases depending on the value of the stock of the corporation, while the filing fee for an LLC stays the same regardless of the value of the LLC; and (2) a corporation will pay $300 more for its annual State Business License than will an LLC. Over the course of several years, these differences will add up.
How to convert a Nevada Corporation to an LLC
As you can see above, converting your Nevada corporation to an LLC makes great business sense given the new law. In order to do so, a corporation must do the following:
First, the board of directors of the corporation must adopt a resolution adopting a plan of conversion and make a recommendation to the corporation’s shareholders to approve the plan of conversion.
Second, the shareholders of the corporation must vote to approve the plan of conversion.
Third, upon approval by the board and shareholders, the corporation files Articles of Conversion with the Nevada Secretary of State.
And Voila! Your Nevada corporation is now an LLC, and you are saving yourself at least $300 (and maybe more) each year in annual filing fees to the State of Nevada5)There is a filing fee of $325 for the Articles of Conversion, but saving one year’s worth of the increased State Business License fee makes this filing fee a wash in a short amount of time..
For nearly all businesses, the Nevada corporation is a dying dinosaur in the world of business entities. An LLC has many advantages over a corporation, while the advantages of a corporation over an LLC are quite few. If you are currently operating your business as corporation, you are not stuck! There is a plan of rescue to convert to an LLC with all of its advantages. Give me a call to talk about adopting a plan of conversion and change your entity to an LLC today.
Footnotes [ + ]
|2.||↑||I say all, but really not all entities are implicated. For instance, non-profit corporations are not issued a State Business License and some other types of entities are exempted from the requirement.|
|3.||↑||This amount does not include local business license fees charged by cities and counties.|
|4.||↑||there are many more|
|5.||↑||There is a filing fee of $325 for the Articles of Conversion, but saving one year’s worth of the increased State Business License fee makes this filing fee a wash in a short amount of time.|