As you think about where to incorporate a business or form an LLC, you may be considering Delaware, Nevada, or Wyoming. Delaware is home to more than half of public and Fortune 500 companies, and both Nevada and Wyoming offer attractive tax advantages. Be sure to consider your business type and closely assess the state laws and financial considerations before making a choice for your business.
What does incorporate mean?
Incorporating a business is the act of creating a corporation. The action should not be confused with the formation of a legal business entity, such as a limited liability company (LLC). An LLC and a corporation are two different structures with different tax requirements.
Advantages of incorporating in Delaware
For large businesses, Delaware holds many advantages — but smaller businesses may not find it as beneficial. Here are the highlights:
- Delaware’s business laws are the most flexible in the country. The state also has an established and highly regarded corporate court system.
- For corporations, there is no state corporate income tax for companies that are formed in Delaware but do not transact business there. In addition, Delaware does not have sales tax, personal property tax, investment income tax, or inheritance tax (although franchise tax does apply in the state).
- Delaware permits a single person to hold several company positions, including officer, director, and shareholder.
- Shareholders, directors and officers of a corporation or members or managers of an LLC don’t need to be Delaware residents.
- Investors prefer to incorporate in Delaware. If you are seeking angel investors or venture capital, incorporating in Delaware is a good idea.
For many companies, the court system is not a primary factor when choosing where to form a business, but Delaware deserves a special mention. The Delaware Court of Chancery uses judges instead of juries and is known for being impartial. And, because most corporate litigation centers on corporations are headquartered outside Delaware, there’s a distinct lack of hometown bias. Delaware courts are known for offering a level playing field, where cases are won on merit, not politics.
Delaware-incorporated companies looking for guidance on particular issues can benefit greatly from the Court of Chancery's experience; the court's decisions usually set the standard for U.S. corporate law.
Learn more about incorporating in Delaware.
Advantages of incorporating in Nevada
By codifying management-friendly standards of care for actions taken in response to takeover attempts and maintaining favorable limited liability protection for directors and officers of corporations, Nevada has made itself an attractive choice as a place to incorporate.
Other advantages often cited for forming a corporation or LLC in Nevada include:
- Nevada has no state corporate income tax and no taxes on corporate shares.
- There is neither personal income tax nor franchise tax for corporations or LLCs. (But initial and annual statement fees and a business license fee apply.)
- During pending litigation, the Nevada business courts provide early comprehensive case management to prevent interruptions to business operations.
- Shareholders, directors and officers of a corporation or members or managers of an LLC don’t need to be Nevada residents
Learn more about incorporating in Nevada.
Advantages of incorporating in Wyoming
Companies often incorporate in Wyoming due to its low tax burden. Wyoming also has lower administrative costs than Delaware or Nevada.
Additional advantages of incorporating in Wyoming include:
- There is no corporate or personal income tax in Wyoming, nor is there a franchise tax (although a license tax is imposed annually).
- There is no requirement for Wyoming businesses to obtain an annual license, unlike Nevada.
Disadvantages of forming your LLC or incorporating in another state
It is rarely advantageous for a small business LLC or corporation to incorporate in another state if it conducts most of its business in its home state. The company will still be required to register an out-of-state (foreign) LLC or corporation in its home state and pay the same fees and taxes.
Corporations and LLCs are considered "foreign" in every state other than their state of incorporation or formation:
- Foreign qualification registers a company to do business in a state other than the state of incorporation (the home state).
- LLCs and corporations formed in Delaware, Nevada, Wyoming, or any other state often need to foreign qualify in their home state since they have a physical location and employees in the home state.
- If you are considering Delaware, Nevada, or Wyoming as your state of incorporation, factor in the initial and ongoing costs and requirements imposed on LLCs and corporations — such as maintaining a registered agent in every state you do business. Also factor in foreign qualification costs, compliance obligations, and ongoing fees in any other state(s) where you are transacting business.