C Corporation
Can my wife and I be the only shareholders in a Nevada C Corporation?
Can that C-Corporation be the Managing Member in an Arizona LLC where my wife and I are the only other two members?
Attorney answers (2)
Robert John Murillo
Reputation Level 15
Answered over 2 years ago.
Business Attorney in Boulder, CO.
You really should contact a local business attorney to advise you as your entity plans may just be a waste of time and money. Regarding the state of formation, in most cases, you are best off selecting the entity in your state of residence and where you do business. The claims about Delaware or Nevada entities as being superior for most business ventures are generally without merit. Delaware has some advantages because of the Chancery court, extensive case law and the generally favorable statutory schemes. The benefit of Delaware really only applies if you are a public company or you have numerous investors and shareholders from multiple states. Not only do you get no substantive benefits for having an entity in another state, you must then pay to qualify that entity in the state where you are doing business. Moreover, you have all the annual fees and registered agent for the foreign entity.
As to having a C corporation, this may make little sense on taxation basis unless you can zero-out income or you need a C corporation for financing or other limited circumstances. There is no limitation on who can be shareholders for a C corporation.
The idea that having multiple entities will somehow provide greater liability protection is generally false. All this does is assure more complication, paperwork, and cost with little benefit. This is further amplified when one of those entities is foreign.
In short, your business is best served by getting accurate legal advice for your business. The time and money saved will easily surpass what you pay.
DISCLAIMER—This answer is for informational purposes only and discusses general legal principles, trends, and considerations and is not intended as specific legal advice regarding your question. This answer does not establish an attorney client relationship. For legal advice, you should retain legal counsel in your state for advice regarding your specific circumstances.
I generally agree with Robert Murillo’s response. Before undertaking the extra cost and hassle of forming and maintaining a corporation as the managing member of an LLC, it is important to determine why you are doing so and if it is worth the time and cost. Arizona law permits individuals to be managers of Arizona LLCs. The managers could be one or more of the members, if you want, or could be non-members. For example, you and/or your wife could be the managers and members of the Arizona LLC. Alternatively, Arizona LLCs can be formed without any manager (these are referred to as member-managed LLCs). So, there is no legal requirement to have a Nevada corporation (or any other type of entity) as manager.
Perhaps there are good reasons why you would want to have a Nevada corporation as the managing member of the LLC, but you should make sure that is the case before forming the Nevada corporation. Arizona law provides significant liability protection to members and managers of Arizona LLCs, and the taxation of corporations can be less desirable than that of LLCs, depending on the circumstances. Perhaps, as Mr. Murillo suggests, you are making assumptions about liability or asset protections or tax benefits you expect from a Nevada corporation that might or might not be justified. Much depends on your particular circumstances, including where you intend to conduct business, the type of business, tax issues, and the type of assets to be held by the entity(ies). There are also limits on the liability and asset protection and tax benefits that you should understand before deciding on the business structure.
Feel free to contact me if you would like to discuss this further or would like any assistance with this.
The answer above is general information to assist you in deciding if you need legal advice and to provide some guidance in case you decide not to seek legal advice. It is not intended to and does not constitute legal advice or establish an attorney-client relationship.
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