Legal Question in Business Law in California

Foreigners Registering Nevada Corp with U.S. Investor

A California based investor will invest in a website developed and operated by a tech person in Europe.

Since the website is targeting U.S. visitors, they want to register a C-Corp in Nevada.

The CA person will be a passive investor owning 70% who will not participate in the operation of the business at all.

The tech person in Europe will run all the business and the website from Europe, owning 30%. He will be the only director and officer of the C-Corp.

Questions:

1. Can the CA person use his SSN to get an EIN if he is not a director, an officer, or an employee?

2. Can the CA person open a business bank account and a merchant account if he is not a director, an officer, or an employee? Can he use his SSN for this?

3. Can the CA person open the business bank account using his residential address in California even if the company is registered in NV?

3. They want to retain all earnings in the company in the start-up stage and not pay any dividend in the first few years. In this case, is there anything the CA person needs to report/reflect in his personal tax filing?

Asked on 7/19/13, 1:22 pm

2 Answers from Attorneys

Timothy McCormick Libris Solutions - Dispute Resolution Services
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You need to talk to a lawyer in person. For one thing, there is no advantage to incorporating in NV if no one lives in NV who will receive income. If the corporation does business in CA, such as by having its banking relationships here, you will have to register in both CA and NV if you want it to be an NV corp, and taxes will have to be paid in CA. Why a C-Corp and not an S-Corp for such a closely held operation? Are you sure you wouldn't prefer an LLC? How sure and why? Why does the US party want to have no control over the company? I recently structured a similar deal for a website where the tech person and server will be in Ireland and the other investors are in the US (CA, OR and AZ). You can really poison your endeavor from the start if you don't get proper advice and assistance setting it up properly.

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Answered on 7/19/13, 1:37 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law
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You can't be an S corporation with a nonresident alien as a shareholder. Otherwise, I agree with what Mr. McCormick has said. By the way, there is no citizenship or residency requirement for either an S corporation or an LLC. Also note that all for-profit corporations are C corps. upon being formed, and don't achieve S status until the IRS has received and processed its application for said status.

I suggest buying one or more of the widely-available business-startup books, usually paperbacks, published by companies like Nolo Press. They cover stuff like corporation-vs.-LLC, S vs. C, opening bank accounts, obtaining EINs, and so on.

If you are a shareholder of a C corporation, you don't pay taxes on its income until it is distributed to you, e.g., as dividends. This points out another aspect of business startups -- you probably need someone with accounting experience, not just to keep the books, but to provide tax and other financial advice.

Use some caution when putting together the bylaws of the corporation; stock pre-printed bylaws will probably be inappropriate.

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Answered on 7/20/13, 9:34 am

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