There are plenty of benefits to creating a separate business entity or corporation to run your business, from privacy to the protection of your assets. Where you form your corporation matters; some states are far more business friendly than others.
What makes one state more hospitable to incorporation than another? The way the state taxes businesses, the way information needs to be shared and revealed, and even the ability to live in one place and incorporate in another are all important considerations when you choose the state in which you want to incorporate.
Taxation is the biggest concern for many businesses, and states that do not have corporate income tax are often more appealing than those that tax all corporations, regardless of size. In some states, the tax burden for schools and other public initiatives is passed on to corporations, making those states distinctly unfriendly for incorporated businesses. States like Delaware and Nevada are far more business friendly with their tax rules; they offer a safe haven for businesses that want to incorporate and operate while avoiding excessive taxation.
Privacy matters a great deal to many business owners. In many states, when you incorporate, you need to supply your contact information and provide information for your managers, shareholders, and partners too. Some states, including Nevada, offer enhanced privacy so you do not have to reveal those details to others. It does not mean that no one can find out who owns the business, but it will not turn up in a casual search. For those who consider privacy to be an important matter, a privacy-friendly state is a big plus when it comes to incorporating.
Can you incorporate in a business-friendly state and live in another? Some states do not allow this at all, or do not offer any benefits that make it worth doing. In Delaware and Nevada, though, you can incorporate and receive tax benefits without actually living there or operating your business in the state. If you simply want the best possible tax setup without a lot of burdens or regulations, but do not want to relocate, then the ability to incorporate in one state and live in another is a huge help for your business.
The whole purpose of incorporating is to limit your liability, and in theory, it works. You will have to depend on your local court system to be corporate and business savvy if your business is involved in a lawsuit. Sadly, not all areas are, and if your business is in a state that is not business friendly, it could cost you if you have to go to court.
Some states are havens for business; Delaware in particular is very friendly for business in general. Judges and attorneys in the state are particularly knowledgeable and skilled, and a lawsuit involving your corporation could be resolved by an experienced jurist, not a jury made up of laypeople. By ensuring any potential case is heard by an educated and informed judge instead of a jury, you can be sure that any lawsuit will be handled properly and fairly in the state. This attitude toward liability means that states like Nevada, Wyoming, and Delaware are more business friendly and are more likely to help you protect your hard-earned assets if you incorporate there.
While each business is different, some states simply stand out as good choices for incorporation. Wyoming, Nevada, and Delaware are ideal choices for incorporating your business due to their business-friendly rules, enhanced privacy, and knowledgeable courts. Learning more about each of these states can help you to make the best possible decisions about your business and ensure you get all the benefits you are looking for when you incorporate.
Incorporating in Delaware
There are quite a few reasons why so many big brands are incorporated in Delaware but do not actually have physical headquarters in that location. In fact, almost half of the Fortune 500 and publicly traded companies in the United States are incorporated in Delaware. What makes Delaware so popular for businesses? For large companies, there are plenty of advantages.
Benefits of Incorporating in Delaware
- Unsurpassed flexibility – The State of Delaware offers businesses lots of flexibility when it comes to corporate and board structure, which makes it easier to set up your organization. Your officers and directors do not have to live in the state to serve your business. You can also run your business solo in Delaware whereas other states may require at least three individuals to be directors and officers.
- Enhanced privacy – In Delaware, you do not need to disclose key details about your officers and directors when you form your business. If privacy is a concern, Delaware could be a good option for incorporation.
- An established and savvy court system – When it comes to corporate issues, Delaware uses judges instead of juries. When your case is heard, it will be before a judge with expertise in corporate law, not a jury made up of laypeople. With savvy judges and attorneys, if you do need to head to court in Delaware, you are more likely to experience a fair, impartial, and streamlined process.
- Attractive to investors – Many investors and banks show strong preferences for Delaware corporations. If you are looking for venture capital or are going public, then incorporating in Delaware could give you an edge.
- Tax advantages – With business-friendly tax laws, there are clear financial reasons to incorporate in the state. If you incorporate in Delaware but have your headquarters elsewhere, you will not have to pay state income tax.
Drawbacks of Incorporating in Delaware
- Not ideal for small businesses – Most of the benefits offered in Delaware are for big corporations with lots of shareholders, so small businesses may not be able to take advantage of those benefits at all.
- Added expense – If your business is too small to benefit from the corporate-friendly laws there, then incorporating in Delaware will require added expense and trouble without a lot of extra advantages.
Incorporating in Nevada
Nevada is considered a business-friendly state for a variety of reasons. If you are considering incorporating in Nevada, there are several key benefits you should be aware of, and some potential drawbacks as well.
Benefits of Incorporating in Nevada
- Foreign entity registration – You can form a corporation in Nevada even if you do not live there or your business will not be run out of the state. Many businesses take this approach, incorporating in the state and then operating in another state, whether it be the business owner's home state or another location.
- No state taxes – For most individuals, the most important benefit of choosing Nevada is the lack of state taxes. The tax freedom is for all types of taxes, not just corporate income tax. When you incorporate in Nevada, you will not have to pay typical state levied taxes such as corporate income tax, unitary tax, estate tax, gift tax, personal income tax, franchise tax on your income, and admissions tax. If you have formed a corporation in Nevada and live somewhere else, you may have to pay taxes to that state. Your accountant can help you determine the best setup for you.
- Enhanced privacy – If privacy is a concern, then Nevada may be the ideal match for your corporation. Unlike almost all other states, in Nevada you do not have to list owner names in order to incorporate. You, your investors, and other interested parties can remain anonymous if you incorporate in Nevada. An attorney can handle all of your details and be named as the person of record for your business.
- Heightened asset protection – When you incorporate in Nevada, any liability your business incurs is kept with the company. While incorporation in any state protects you against most liability, other states have loopholes that could cause you to be held responsible for damages caused by your company. You are also not required to list your company assets for the state—only for the Federal government. This anonymity further protects your privacy and your assets when you incorporate in the state of Nevada.
Drawbacks of Incorporating in Nevada
- High fees – Nevada does have relatively high incorporation fees and costs compared to most other states. They have also recently increased those fees.
- Stigma – There may be a stigma to forming your business in Nevada. Some people see corporations formed there and operated elsewhere as illicit or having illegitimate goals. Movies and television shows are largely responsible for presenting businesses formed in Las Vegas and other Nevada cities in a poor light. While most businesses in the state are started and run above board, the stigma remains.
Incorporating in Wyoming
While Delaware and Nevada get all the press, there are some clear benefits to incorporating in business-friendly Wyoming. Wyoming was actually the first state in the country to allow individuals to form corporations; the state granted permission for Limited Liability Companies in 1977. With a long history of providing ongoing economic incentives, Wyoming continues to be a haven for entrepreneurs and startups.
Benefits of Incorporating in Wyoming
- Flexibility – How will you run your business? In Wyoming, you have several options. When you file your incorporation paperwork, you will need to identify the individuals who will be running your day-to-day operations.
- Business incentives – The state government in Wyoming offers several incentives to businesses that wish to incorporate there. There is no corporate state income tax or franchise tax for corporations, and the annual report filing fee remains low at under $100.00 per year. In addition to these benefits, the state of Wyoming does not collect personal income tax and has a low sales tax at 4%; however, there are exceptions for manufacturing equipment and similar purchases. All of these benefits help Wyoming stay attractive to corporations and can help save you money if you choose to incorporate in the state.
Drawbacks of Incorporating in Wyoming
- Fewer benefits for remote businesses – While Wyoming has advantages for those who own businesses and live in the state, if you wish to live somewhere else, you may not get much benefit from launching your business there. Most tax and other benefits are for those who operate in the state, so you would be better off launching a remote business in Delaware or Nevada instead.
These three states all have advantages for incorporation. Carefully considering taxation, the approach to privacy, and even the courts in Delaware, Nevada, and Wyoming can help you to choose the right state for incorporating your new business. By reviewing each location you can proceed with confidence, knowing you have made the best possible decision for your newly incorporated business.
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