Introduction - We are a Panama Law Firm and in the course of dealing with clients and their asset protection strategies the subject of Nevada Bearer Share Corporations comes up frequently. We even encounter people from Europe and Asia who talk about using a Nevada Corporation for asset protection. We did some research on this subject and below follows what we discovered about Nevada Corporations.
Does Nevada Really Allow Bearer Share Corporations - This is a good place to start. It seems that the root of this controversy stems from a Nevada Statute entitled NRS 78.235(1):
-Except as otherwise provided in subsection 4, every stockholder is entitled to have a certificate, signed by officers or agents designated by the corporation for the purpose, certifying the number of shares owned by him in the corporation.-
Now clearly this is not something to base an asset protection strategy on. The words "Bearer Shares" are never mentioned. It does not state anything about possession of the shares equating to the ownership of the corporation, as is the case in a true bearer share corporation like the Panama Sociedad Anonima (S.A.). Nevada Law does not specifically authorize the issuance of bearer share stock certificates for a corporation. It is just a practice that works of course until someone challenges it and then it tends to crumble.
Court Ordered Examination - Remember when using a Nevada Corporation, the corporation is under Nevada Law and the laws of the USA. This is uncomfortable right off the top for anyone interested in serious asset protection. If your Nevada Corporation gets involved in a court action and the lawyer suing the corporation or a government attorney bringing an action against the corporation decides to find out who owns the shares they may examine under oath anyone whose name comes up from bank records, corporate records etc. Please bear in mind that corporate records for a Nevada Corporation are supposed to subject to a subpoena from any USA court. If the court can not establish who owns the shares (this means there is no owner) or can not obtain records from the Nevada Corporation they will be likely to just consider the corporation dissolved and treat it as if it did not exist. This means 100% of the asset protection value is now gone. It is common in USA court cases to ask the relevant people if they owned the shares in any corporation during the last three years. Just in passing such a question would generally not be allowed in many countries. The questioning attorney would be restricted to making inquiries about a specific entity only unless it was a hearing to determine assets for a collection matter or bankruptcy case.
So if the person says he does not own the shares of the Nevada Corporation and does not know who owns them and there is no registered shareowners the court will be prone to treat the Nevada Corporation as if it does not exist or as if it is technically dissolved which means dissolved. If a person has a proper asset protection structure like a Panama Bearer Share Corporation that is owned by a Panama Foundation he could sit through such a questioning. He or she would state that a Panama Foundation owns the shares of the Panama Bearer Share Corporation. He would then say he does not and never did own the Panama Corporation shares and never owned the Panama Foundation. Panama Foundations legally have no owners but he would normally not be asked that question since foreign lawyers are generally unfamiliar with offshore structures, so he need not he answering question he or she was never asked. He could go further and present a signed, notarized and apostilled employment agreement from the Panama Corporation documenting why he is involved with the Panama Corporation as an employee only. He could also present a signed confidentiality agreement with the Panama Corporation where he would be penalized for $500,000 if he reveals details about ownership or corporate affairs.
Now it gets interesting and no lawyer really knows what the judge will do. The lawyer pursuing the Panama Corporation would now be in jeopardy of the person suing the lawyer for damages of $500,000 for forcing him to reveal details and that is only if the judge allowed him to do this. The judge will just see the person as a corporate employee and may let the agreement stand. The collection lawyer is trying to go somewhere and that somewhere is to prove ownership or a not arms length involvement with the offshore structures. Since the lawyer is lacking any documented ownership records he is trying to get the court to force the person to reveal things that will enable him to pursue his claim. Now the judge in the absence of this evidence the collection lawyer needs is going to treat the person simply an employee which is consistent with the evidence and may very well respect the agreement. This agreement and the use of the foundation thwarts the collection attorney from getting where he wants to go. The reality is the person does not own the corporation and does not own the foundation, that is 100% factual. The collection attorney would need to try and twist things around to get the judge to set the structure aside but now he runs into an obstacle with the confidentiality agreement and the employment agreement and all this works because there are no ownership records, foundation protector records or foundation beneficiary records in any public registry in Panama. This lawsuit to collect the $500,000 in damages for being forced to violate the confidentiality agreement can take place in a Panama Court. The USA will strangely let a foreign court like Panama domesticate a judgment in the USA while a USA judgment is not good in Panama. This means a lot of problems for the collection attorney and the odds are great he will not have any idea what the final outcome of this will be. This Panama judgment could be enforced in countries other than the USA if one was obtained against the collection attorney. The big conflict of interest when using an American attorney is they will never want to expose themselves to help a client and the paths to exposure in the USA are numerous and very broad paths at that. Litigation in the USA is enormous, and the awards are even more enormous.
More Nevada Bearer Share Corporation Problems - If this Nevada Corporation has any business dealings in another state in the USA then it should be under the rules of that state. It should also domesticate or file in the state in question before operating there. This will not work since the other states do not recognize bearer shares and registration information required to be filed for domestication will defeat the anonymity of the bearer shares. Many simply ignore filing in another state even though they should do so. This leaves their Nevada Corporation subject to being treated as if it does not exist and negating any asset protection value.
Obligation to report Ownership transfers - Nevada does not have real bearer shares allowed in their corporate legislation like say Panama does. A Panama Bearer Share Corporation ownership is based on who physically has the share certificates, which can be made out in blank similar to the old bearer bonds. Panama does not require changes in ownership to be reported, Nevada does require such registration changes to be reported but many simply ignore this thinking they have real bearer shares. The Panama share certificates can be kept anywhere in the world and the books and records of the corporation can be kept anywhere in the world. This of course makes serving a subpoena extremely difficult especially since you don't know where to start. No ownership records appear in any public database and the Panama Government does not even know who owns a Panama Corporation or Foundation. So bearer shares or no bearer shares the records of a Nevada Corporation are subject to subpoena and ignoring those subpoenas will cause the court to consider the corporation defunct and set it aside exposing all the assets it held.
Nevada Bearer Share Corporation Used in Offshore Asset Protection Strategies - This will undoubtedly be the weakest link in what could have been a solid asset protection structure. They are not real bearer share corporations. They are not under the legal system of a privacy or tax haven. Records and books are subject to subpoena and ignoring those subpoenas can result in the corporation being set aside as if it does not exist. Why take a perfectly good asset protection strategy and ruin it.
Offshore versus Onshore Asset Protection - Please bear in mind that any asset protection strategy that involves assets located physically in the USA is going to have a chink in its armor because the assets are under the court jurisdiction of the USA. This would means city courts, county courts; state courts and federal courts - yes all of them since they practice reciprocity.
Now in addition to the civil court orders you are open to governmental actions. This means every city attorney; every county attorney, every state attorney and every federal attorney can have at your assets using the courts or just by executing a confiscatory action like an ex-parte attachment order. Some agencies can even just lien, levy or sell your assets without using the court process and this extends beyond just taxing authorities and includes environmental agencies and other regulatory bodies. Their reciprocity may not normally cover a pre-trial ex-parte order but if they won a judgment that would be covered, even if it was a summary judgment.
If that is not enough the USA is in the habit of letting judgments from foreign countries become domesticated (enforceable) in the USA so a foreign judgment from a third country could be enforced against any assets in the USA. So suffice it to say the fewer assets in the USA, the stronger your asset protection structure will be. Merely titling something physically in the USA to a foreign corporation, trust, foundation etc will help because it prevents the assets can't be associated to you in public databases thus removing you from being a target for litigation, extortion, blackmail etc., but it will never give the best asset protection. There is a reason why Panama has over 400,000 corporations and 25,000 foundations registered there and that reason is it works.
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