Which State in the U.S. is Best to Form Your LLC(s)?
Now that you have determined that it is a must to form a U.S. LLC for both your “safe” and “risk” investments, the next question becomes, which state is best? As you know, there are 50 states to choose from (NCP forms corporations and LLCs in all 50 states) and the two most popular choices for an international business professional looking to form a U.S. company are Delaware and Nevada.
The main rights in Delaware law benefit shareholders of public corporations. This attracts large public companies that trade on various exchanges across the country to provide the best protection to their shareholders. Delaware’s corporate law, with regard to corporate takeovers, is the strongest in the U.S. However, for everyone else, including an international entrepreneur looking to form a U.S company, the following chart illustrates several benefits of Nevada over Delaware:
Nevada vs. Delaware
It’s No Secret: Nevada Beats Delaware
Nevada ’s liberal incorporation laws offer more protection and less disclosure than the once-popular Delaware, making it the most advantageous state in which to incorporate. Here are some of the specific differences:
State Corporate Tax
Disclosure of principal business location
Report actual number and value of stock listed
Freely exchanges information with other states
and the IRS
In short, Delaware’s state corporate tax amounts to 8.7%. Nevada has NO STATE Corporate or LLC taxes. That means with a Nevada Corporation or LLC the entity is filing a federal tax return only and is subject to Federal taxes as they apply. Delaware also requires disclosure of the principal place of doing business outside the state, requires the corporation to report the actual number and value of its stock, and freely exchanges information with the IRS.
In addition, Nevada’s corporate legislature has recently surpassed Delaware’s in its efforts to ensure that the rights of small corporations are protected. Delaware, for example, adopted a statute that allows the corporation to limit the liability of a director for monetary damages. However, it has far to go to be compared to similar statutes adopted by Nevada. For example, the following are acts for which officers and directors would be protected under Nevada law, but exposed under Delaware Statutes:
• Acts or omissions not in good faith.
• Acts by officers are not exempt from monetary damages under Delaware law.
• Breach of a director’s duty of loyalty.
• Transactions involving undisclosed personal benefit to the officer or director.
• Acts or omissions that occurred prior to the date that the statute, which provides for indemnification of directors, was passed and approved.
Delaware requires that an officer must reasonably believe that he/she is performing his/her duties in a manner that is in the best interests of the corporation. This is not a requirement in Nevada.
* To verify this information, call the state corporate tax department of Delaware at 1-302-577-3300
** Even though this type of information sharing has not been the practice of Nevada in the past, in today's world the IRS is realistically able to get its hands on any information they deem necessary to further the cause of “fair and reasonable taxation.”