Corporation is simply a legal person that is chartered by the Secretary of State or other Authority, depending upon the State. You and I were  born from our parents and a Corporation is born or chartered. The obvious differences are that we are physical persons, and a Corporation is merely a legal entity. More subtle differences are that:

Corporations are of legal age, as soon as they are chartered.

Corporations are presumed to have only one function, namely to make a profit for its owners.

Corporations have their own tax I. D. number (SS#), so to speak, which means that they are not us.

Corporations live on paper and through the minutes and by-laws that evidence its existence.

Corporations have their own assets and accounts (Bank accounts, Brokerage Accounts, etc.)

Corporations have their own safety deposit box.

Corporations do not die. They are dissolved.

Corporations have their own tax brackets.

Corporation tax bracket are among the lowest.

Corporations cannot go to court. They must be represented by legal counsel, licensed to practice before the bar.

Corporate owners are liable only for the amount of investment in the corporation.

Corporate officers have limited liability for their actions.

How does this all work ? Well, the players involved begin with the incorporator or incorporators. This person’s job is create the paperwork to be filed with the State. These papers are commonly called the Articles of Incorporation. The incorporator(s) function is to then file these papers with the State and await their return and acceptance of the Charter. Typically, the incorporator(s) then appoint what we like to call, the managing directors or stockholders. At this point, the incorporator(s) quit or resign. This may take place all within 24 hours. Then the managing stockholder(s) or director(s) have a short job (a few phone calls), which is to simply call a stockholder meeting. Then these managing stockholder(s ) or directors, resign also and the stockholder(s) elect what we like to call, the real director(s). Privacy (not to be confused with asset protection), can begin here. The incorporator(s) and the managing stockholder(s) or director(s) were both reported to the state, in order to form the corporation, but they all just quit on the first day. At least, this can be how it works in Nevada. We believe that most state operate similarly, but make sure you check with your legal counsel to make sure you are complying with all laws.

The stockholders really only get to do about three very powerful things.

• They get to elect the directors that will make the policy decisions for the corporation.

• They get to collect dividends, provided the corporation earns income and declares a dividend to the stockholders.

• They get to have whatever is left from a dissolution of the corporation after all creditors have been paid, if there is anything left to disburse.

After electing the directors at the initial stockholder meeting, the directors then call their initial meeting in which a ton of stuff should and usually does take place. The directors may and should (where appropriate) do the following at their initial meeting:

• Accept the By-Laws of the Corporation

• Elect Officers

Why Look At Nevada ?

Additional Advantages

Is there any privacy left in this country for a person or family business? Maybe there is ! Bearer Shares may be the answer.

These are ordinary shares except that the owner's name does not appear on the certificate nor on public file. Furthermore, mere possession of the share certificate is deemed proof of ownership. Bearer shares are not possible in the case of most European jurisdictions but are advocated as a positive feature of companies incorporated in Antigua, Bahamas, BVI, Panama, Turks & Caicos, Liberia, etc.

The key to use of BEARER SHARES is that great care must be taken to insure that no income tax evasion occurs. Always use your advisors here. In most instances, a better strategy is to use a trust to hold the shares. For tax reasons, it is sometimes best pass through the trust earnings to the beneficiary of the trust, since trusts are taxed at the highest rates if they are non-grantor trusts. Keeping retained earnings in the Corporation, rather than paying dividends, is another way to keep the taxes at a minimum on a yearly basis.

The use of bearer shares by a U.S. citizen to conceal corporate ownership, where the corporation is receiving income, making investments, etc., and then doesn't’t file tax returns, is tax evasion, and anyone who tells you differently is probably lying. We have seen this misunderstanding on more than one occasion. Unfortunately, the IRS has been wise to this technique for about the last 30 years, and if they catch you using bearer shares (whether you hold them or not) to hide a corporation which is keeping assets or taking in income without paying the IRS its dues, you will spend some serious Club Fed time.

But, you say, how will the IRS ever find out? There are a bunch of ways the IRS finds out, from spouses who were once trusted but now are mad, to disgruntled secretaries and staff, to folks who are just too dumb than to know better than to use their home or business telephone to call overseas, or to receive offshore bank statements at their home, or who are using someone offshore who is inept or can be bribed, or who fail to realize that all ATM machines use time-dated video cameras to . . . well you get the picture. There are a zillion possible ways for the IRS to find out about your bearer share or offshore corporation, and they only need one. So just don't use them, period, unless you really know what you are doing.

Regularly deal with the very best licensed planners in the U.S., and they will all tell you that the use of bearer shares is a very, very bad idea. If someone suggests the use of bearer shares to you, RUN-FAST-!-!-!- for they really don't have the first clue about what they are doing, and are suggesting an act so amateurish as to belie even a hint of real competence on their part.

Notably, many of the offshore trust companies and offshore company formations company will advocate the use of bearer shares (so much so that even when we form a fully-disclosed offshore corporation and have specified the shareholders, that they will sometimes send us bearer shares simply because they are in the habit of sending bearer shares to their other clients). Keep in mind that these offshore "professionals" have no real knowledge of U.S. tax law, any more than a plumber understands a nuclear reactor because it has a lot of pipes. That they tell you bearer shares will protect you, will not keep you from going to the Big House.

Needless to say, any knowledgeable and experienced U.S. planner avoids the use of bearer shares, except in extraordinary circumstances.

Bearer shares are corporation stock certificates which are owned simply by the person who holds them, the "Bearer".

When corporations first came into existence, most shares were bearer shares. If you wanted to protect your

interest in the corporation, you had to protect your bearer share certificates. To protect against theft and fraud, corporations starting keeping a register of the owners of the bearer shares which were issued, and notice had to be sent to the secretary of the corporation to record the change in ownership. Eventually, the

corporation's stock ledger determined ownership, and shares only facilitated the transfer of ownership (and, indeed, today few people ever see the stock shares they own). Eventually, most U.S. states even dropped the provisions allowing bearer shares.

But recently they have made a comeback, spurred on by the so-called asset protection sector and those seeking privacy. Nevada, for instance, has built a healthy incorporation industry because Nevada corporation law allows bearer shares.

And the offshore jurisdictions have always allowed bearer shares; indeed, almost all the offshore corporation providers presume that offshore corporations will be issued with bearer shares only (and often send our clients corporations with bearer shares even when we specifically request otherwise).

But does the fact that you can get a corporation with bearer shares both in the U.S. and in the offshore jurisdictions mean that you should use bearer shares? No -- except in very specific circumstances you should avoid them like the plague.

For bearer shares suffer from a couple of very serious defects.

Presumption of Ownership -- Asset Protection

Of course, most structures utilizing bearer shares are for tax avoidance/evasion and asset protection only plays a secondary role (if at all). However, sometimes bearer shares are utilized primarily for asset protection purposes.

In either case, this is discouraged. Our real-world experience both in attacking and defending bearer share structures is that judges eventually gravitate towards the position that if they can't figure out who owns the corporation, they will presume that the defendant owns the corporation -- then the bearer shares become counterproductive because the burden is on the defendant to prove that someone else owns the corporation.

The Upshot: You are much better off having some identifiable person own the corporation (even if only in a nominee capacity) than you are to have nobody own the corporation.

Presumption of Ownership -- Income Tax

The first horrible tax trap for bearer shares is the IRS's ability to make a jeopardy assessment that the entire value of a bearer instrument is income, if the IRS catches you in possession of the instrument and you have denied ownership.

For instance, let's assume that you make $10 million on a stock deal, and like a good taxpayer pay your capital gains tax in that year. But then -- because you fear divorce -- you take your $10 million and you put it into a Bahamas IBC which is owned by bearer shares. The $10 million grow to $20 million in a couple of years.

Unfortunately, your wife gets into your safe deposit box, and the IRS finds out about the bearer shares. Under IRC 6867, the IRS simply taxes the entire amount (not just the growth) at 39.6% plus penalties. And you will probably spend the remaining amount for criminal defense attorneys to fight the subsequent charges of tax evasion.

Gift Taxes

The second horrible tax trap is this: Every time bearer shares are handed over to and from a U.S. person -- except for a bona fide sale for value -- gift taxes must be paid! And, of course, if there is a sale then capital gains taxes must be paid.

For example, let's say you have $10 million in the Bahamas IBC as set forth above. You think you are about to get divorced, so you give the shares to your brother to hold for awhile. In the divorce proceedings, you answer "no" when asked if you own any foreign stock interests. After the divorce proceedings are over, your brother gives the shares back to you. Easy enough, eh?

Not quite. From a federal gift tax standpoint, in approximate numbers here's what happened:

First, when you gave the bearer shares to your brother, you triggered a 55% gift tax, meaning that you now owe $5.5 million to Uncle Sam.

Second, when your brother gave the bearer shares back, he triggered a 55% gift tax (again on the $10 million value), meaning that he now owes $5.5 million to Uncle Sam.

Thus, your simple little transfer to your brother and back triggered a total of $11 million in federal gift tax liability to you and your brother -- meaning that you and your brother are now $1 million in the hole! Needless to say, you would have done much better to split the $10 million with your ex-spouse in the divorce proceedings.

And if you don't report and pay the taxes generated by handing these shares back-and-forth it is big-time tax evasion. So, if you hear someone talk about bearer shares, ask them whether giving the shares to someone triggers federal gift taxes. If they say either "no" or that they don't know, then they have sufficiently displayed their ignorance in this area such that you should be quickly running away from them.

Foreign Transaction Reporting

Additionally, the unreported transfer of bearer shares across the U.S. border can be argued to violate the Treasury Department requirements for transactions in excess of $10,000, i.e., if you hold bearer shares for a corporation having more than $10,000 in value, you must report the shares when you bring them into or take them out of the country, or else face steep fines and possible criminal penalties.

Bearer Shares Are A Tool

Notwithstanding the foregoing, bearer shares are a tool and in certain circumstances can serve their purposes. But they should be avoided most planning purposes, and when they are utilized the downside should be carefully discerned in advance.

WARNING: The information given here does not constitute legal or accounting advice or opinion, and

should not be relied upon for any planning purposes. It is provided solely and exclusively for general, non-specific educational purposes, and to advise the reader of the nature of the services offered individually by us. Planning of this nature is necessarily very circumstance-specific and therefore it would be dangerous to apply the very general rules described herein to any singular fact-pattern. Prudence demands that you consult with an experienced professional before attempting any of the planning techniques described herein.

WARNING: If you are a U.S. citizen, as to any tax planning technique described herein, you should consult with the U.S. Internal Revenue Service, one of the major accounting firms, or other licensed tax attorney or CPA prior to beginning any tax planning. All planning must be based on "substantial authority". TAX EVASION IS A SERIOUS CRIME! If someone tells you not to consult with the IRS or a licensed tax attorney or CPA prior to implementing any planning, there is something seriously wrong and you should think twice about such planning.

WARNING: You should also be aware that any attempt to defeat the collection of certain U.S. government and U.S. government-backed obligations can amount to a crime. You should therefore advise your planner immediately if you have any such obligations.