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Q.Should I incorporate in Nevada or Delaware?
A.After deciding to incorporate, one of the first decisions a business must make is selecting the proper state of incorporation. In the United States, you are free to incorporate in any state.
Up until a few years ago, incorporating in Delaware may have had significant tax and other advantages, but this has changed. Nevada has also attracted new companies with favorable privacy and liability laws and simple procedures for setting up a corporation, but it's a myth that you will save money. In fact, incorporating in Nevada will probably significantly increase your annual costs because you will have to pay over $150 to the state of Nevada each year and file a tax return in Nevada each year.
For small businesses, often the best decision is to incorporate in your home state. Why? Because the cost of incorporating in your home state is likely to be far less than the cost of incorporating elsewhere and qualifying to do business as a foreign corporation in your home state. A foreign corporation that qualifies to do business in another state is subject to taxes from both the state of incorporation and the qualifying state. Another disadvantage of incorporating outside of your home state is the possibility of having to defend a lawsuit in another state.
For example, assume you reside and conduct all, or most, of your business in the state of California and that you are intrigued by forming your corporation in Nevada for the alleged tax break. Forming the corporation in California will probably be the better choice because if you incorporate in Nevada you will still have to qualify as a foreign corporation in the state of California, which has the following consequences:
- you will not only have to pay the annual corporate reporting and franchise tax fees to the state of Nevada, but also in California (presently a minimum of $800 annually);
- you will also have to pay additional filing fees to qualify to do business in the state of California;
- you can be haled into court in both the state of Nevada and California; and
- you will probably have to hire an accountant to file annual tax returns for two states.
If you are still unsure where to incorporate, consult a competent local corporate attorney. Better to ask than believe some of the myths generated by advertisements.
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