The short answer is that it will probably cost you more money to incorporate in Nevada or Delaware. In addition, it may provide few, if any, substantial advantages unless you have a larger corporation and unless you live in one of those states or are doing most of your business there.
If the corporation is a small business corporation and does business primarily within a single state, incorporating in the home state is typically preferable. The cost of incorporation in your home state will usually be less than incorporating in a different state and then trying to qualify to do business as a foreign (meaning from another state) corporation.
A foreign corporation that qualifies to do business in another state is subject to taxes and annual report fees 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. You will also have to maintain a registered office and agent in the other state, which is an additional cost each year.
If you operate a business, within no particular location or home base, such as an internet business, then you might want to consider Nevada or Delaware. However, you may find the cost of operating and maintaining your corporation higher in Delaware than in your home state due to the franchise fees charged by Delaware and the need for a registered agent in Delaware.
Many large corporations are domiciled in Delaware but my opinion is that Delaware does not provide many benefits to smaller companies that could not be found in their home state. Nevada promotes the incorporation business by claiming no state income taxes and not sharing tax information with the IRS.
However, if you do business in another state, you will likely still pay state taxes in the state in which you conduct business. Each state has its own formula for deciding if a business owes state taxes. It’s best to consult an accountant about this question.
As far as sharing tax information with the IRS, the IRS can obtain your records in Nevada by way of subpoena if they want. Also, I believe in being aggressive with tax savings, but not cheating. So what do you have to hide?
Nevada promotes the incorporation business and a lot of incorporation services have sprung up there. Some of these offer valuable services while others advocate advantages, which are more puff than reality.
Due to this and the large number of corporations formed in Nevada, some experts say that Nevada incorporating has developed a questionable reputation with the IRS and may subject a business to a greater likelihood of an audit if it is formed in Nevada.
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