86°F
weather icon Clear

The Elon Musk effect: Why more businesses want to incorporate in Nevada

Elon Musk’s businesses have been planting roots in Nevada for years now. But after the billionaire faced a legal hurdle in Delaware — the country’s capital for the legal homes of corporations and other business entities — he made his preferences clear.

“I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters,” Musk posted Jan. 30 on his social media platform X, formerly known as Twitter. A Delaware judge had invalidated his $55.8 billion pay package as CEO of Tesla that day.

Weeks later, another billionaire with deepening ties to Nevada had an incorporation win. A Delaware judge ruled in late February that Tripadvisor Inc., the online review and booking site whose controlling shareholder is Formula One’s Greg Maffei, could move its incorporation to the Silver State, despite a legal challenge from shareholders.

Nevada is getting more attention from business entities looking to establish or reincorporate in the state, which doesn’t require moving their physical headquarters.

There were more than 108,000 business entities registered in Nevada in 2023, a roughly 150 percent increase from 2019, according to data from the Secretary of State’s Office. While small businesses make up much of the growth, industry and state officials say the high-profile attention could bring more big names, additional state revenue and maybe even a more diverse economy in the long term.

“Once they realize the benefits of incorporating in Nevada, they’ll start to realize how supportive Nevada is of business and business growth,” Secretary of State Cisco Aguilar said. “(Then) they may even physically consider moving here, which brings jobs, it brings investment and it brings us resources to invest in all the infrastructure that Nevada citizens care about.”

Nevada’s corporate landscape

Delaware has long led the U.S. corporate sphere for its tax policies and depth of case law — 68.2 percent of Fortune 500 companies call the eastern state their legal home. But other states, like Nevada and Texas, have spent decades working to attract some businesses to the state through statutes that provide alternative legal protections for officers and controlling shareholders.

“If we’re running a race, Delaware is in the lead, but Nevada is second,” said Benjamin Edwards, a corporate law professor at UNLV. “We’re not nipping at Delaware’s heels. They’ve probably lapped us a couple times.”

Recent decisions, such as the ruling on Musk’s compensation package, have put those options at center stage. About two weeks after the Delaware Chancery Court’s decision, Musk moved his brain implant company Neuralink’s legal home to Nevada.

Experts say the differences come from greater focus on shareholders in Delaware. Courts and law there put more emphasis on protecting shareholder value, meaning a company’s officer could be sued for things like gross negligence. Statutes in Nevada give those officers far more protections — in most cases, one would face personal liability for fraud.

“What Nevada did is we went further than Delaware, and it’s one of those reasons why people are actively considering Nevada over Delaware these days,” said Michael Bonner, a Las Vegas shareholder at the law firm Greenberg Traurig LLP. “Believe me, it’s still a consideration. Many, many people will still select Delaware.”

Industry members in the state frame it as an insurance policy for the limited liability companies, corporations and other business entities they work with. Cort Christie, CEO and founder of business services firm Nevada Corporate Headquarters, said small businesses — which make up a large majority of state filings as LLCs — consider incorporation in Nevada for the legal protections.

“It’s kind of like all of us can choose the levels of auto insurance that we want, and we’re broke,” Christie said. “We’re gonna choose the lowest limits that we can to save as much money as possible. But we all know that if you get into a bad accident, there can be risks with that and potential lawsuits that come out of that as well, so you want to be properly insured.“

Impact on Nevadans

Business entities aren’t just considering Nevada for its greater liability shield. Others coming from Delaware are looking to save money, according to filings from some publicly traded companies.

Laird Superfood, a plant-based food producer physically headquartered in Boulder, Colorado, reincorporated in Nevada on Dec. 31. In a filing with the U.S. Securities and Exchange Commission before the shareholder vote, it told investors that it expected to pay about $200,000 in Delaware taxes for that fiscal year. By contrast, Laird’s Nevada annual fees are expected to be about $700, according to the filing. Nevada doesn’t have corporate taxes.

Similarly, Tripadvisor’s April 2023 proxy statement to its investors said it paid $250,725 in Delaware taxes in the 2022 fiscal year and would likely pay around $1,725 in annual fees in Nevada.

Despite any rising trends, the average Nevadan may not see immediate changes as more business entities file in the state. Aguilar, whose office oversees business licensing, said the state benefits by generating additional revenue added to the general fund, providing funding later for road projects and other state services.

New registration revenue and other annual fees for corporations and sole proprieterships generated $183.4 million in 2023, according to the state. That’s a 150 percent increase from the nearly $72 million generated in 2019. A spokesperson for Aguilar’s office said the commercial recordings division also generates revenue for the state’s general fund.

Aguilar’s office is determined to work with business owners small and large to improve the process and environment for businesses. Officials are working on a $15 million overhaul to SilverFlume, the state business portal, with the goal of making it usable without the help of a lawyer by mid-2025. Intended improvements include reducing bugs, modernizing the look, increased self-help options and adding functions like automatic license renewals.

In recent weeks, Aguilar said he’s fielded more calls from businesspeople interested in Nevada incorporation. He declined to specify which firms are interested, but he said many of the major shareholders calling already live in Nevada and are inquiring about the state’s differences and the reincorporation process.

“It’s for free advertising for somebody like Elon to talk about the benefits of Nevada,” Aguilar said. “People listen to what he says. And when he speaks, especially from a business perspective, people listen. Then they start asking questions of their own companies: Does it make sense for us to be here, or should we be in Nevada?”

McKenna Ross is a corps member with Report for America, a national service program that places journalists into local newsrooms. Contact her at mross@reviewjournal.com. Follow @mckenna_ross_ on X.

Don't miss the big stories. Like us on Facebook.
THE LATEST
 
What is Las Vegas’ Brewery Row?

The Brewery Row concept was introduced as another way to make the Arts District area near Downtown Las Vegas stand out by offering many different beer options.