CEOs Opting for Nevada Over Delaware for Corporate Registration: Silver State Offers Friendlier Jurisdiction, Minimal Annual Fees, No Corporate Income Tax

In April 2023 the Wall Street Journal reported that “Twitter Inc. has told the courts that it has a new company name in a new state: X Corp., an entity incorporated in Nevada instead of Twitter’s previous domicile in Delaware.”

In a more in-depth July 27 piece, the New York Post explained  Why CEOs are rolling the dice on a move to Nevada” asserting “Elon Musk’s decision to move from Delaware to Nevada could add fuel to a growing trend: companies ditching the First State for the Silver State to seek a friendlier jurisdiction from investor lawsuits and cheaper fees.”

What does that mean for companies choosing to register their headquarters in Nevada?

Legal experts say that Nevada provides more protection for corporate officers against “piercing of the corporate veil” – the legal barrier that separates business from personal assets. When a court pierces the corporate veil, this means that the corporation’s actions are tied back to its controlling officers and shareholders. These individuals can then be held accountable for acts of fraud or liability. Nevada courts have developed a strong record of case law that better protects the corporate veil.

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“In Nevada, it’s a high bar for liability — directors and executives will only be liable for ‘intentional misconduct, fraud, or a knowing violation of law,’” Benjamin Edwards, law professor at the University of Nevada Las Vegas told On The Money. “That insulates company leadership from a lot of claims.”

Columbia Law professor and securities expert John Coffee concurred. “There is little doubt that Nevada has been seeking to make itself the most lenient jurisdiction for corporations that incorporate there by reducing the ability of shareholders to sue its managers and directors. Delaware and other jurisdictions provide for broader liability.”

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Elon Musk’s choice of Nevada as home base for X Corp. takes on extra significance, considering the entrepreneur has established some of his largest ventures in the Silver State. In 2016, he opened a Tesla Gigafactory near Reno to produce electric vehicle batteries and then announced a $3.6 billion expansion in order to manufacture electric trucks. Nevada is also home to Musk’s Boring Company that includes the transit tunnel built under the Las Vegas Convention Center and the Vegas Loop. With the new filing, Musk now operates at least three businesses in Nevada, one of which is now part of an overarching X company.

Among other companies that have moved their corporate registration from Delaware to Nevada are language and translation services company, TransPerfect; Light & Wonder, a gaming manufacturer with a market cap of more than $5 billion, and DraftKings Inc. when it merged with Diamond Eagle Acquisition Corp. in a SPAC.

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Nevada continues to offer one of the friendliest business climates in the country. The 2022 Kosmont-Rose Institute Cost of Doing Business Survey reported Las Vegas as the No. 1 destination for California businesses that relocated in the last 30 years. It found 2,832 companies moved to Las Vegas between 1990 and 2019 – almost double the second-highest destination of New York City. The study analyzed 158 western U.S. cities through seven variables: sales tax, utility tax, business license fees, average office rent, FBI crime index, median home value and minimum wage. While Las Vegas was the most popular destination in Nevada, other Silver State cities were considered among the most cost-friendly for businesses including North Las Vegas, Gardnerville, Henderson and Carson City.

For more information visit the Nevada Secretary of State website where you’ll also find Top Reasons to Incorporate in Nevada, including no corporate income tax, no taxes on corporate shares, no franchise tax, no personal income tax, no franchise tax on income, no inheritance or gift tax, no unitary tax, no estate tax, and many other benefits!