Whether you are located and operating from inside the U.S. and especially, if you are running a business from outside the U.S., have all the information on which state is best for your business to incorporate is critical. The simple approach, if living in the U.S., may very well be to incorporate in your home state, but that may not always be the best answer for everyone.
Oh, yes, like any other subject, there are lots of opinions, and like any subject, there are exceptions to the rule. There is not adequate room to cover every angle in this report, but let’s cover the vital fundamental points on the top four options.
Keep in mind, NCP does incorporate in all 50 states. If you have a higher tolerance for risk, you may want to consider incorporating in your home state. Either way, NCP can help you form your company and protect your assets.
The Four Most Common and Best Options:
• Incorporate in Nevada – Nevada Secretary of State continues with their plans to amplify Nevada’s place in the incorporating marketplace with many changes. Nevada is still the #1 state for liability protection, even with the increase in state fees. If your business generates over $4 million in gross sales the new franchise tax fees may make Wyoming a better choice for non-U.S. residents.
• Incorporate in Delaware – The long-time standby and the most popular, especially for the large East Coast law firms. Going public? Forming a Delaware corporation may be your best option (although do not count Nevada corporations out).
• Incorporate in Wyoming – This is a popular state with lower state filing fees which may appeal to the budget conscious non-resident entrepreneur looking to form a U.S. company.
• Incorporate in Your Home State – simple, easy, least thought-involved choice — the biggest default selection.
Taking a Closer Look at Each Option…
See our in-depth descriptions of Nevada’s business advantages.
What’s My Best Choice: Nevada LLC or
The primary rights in Delaware corporate 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, about corporate takeovers, is the strongest in the U.S. However, for everyone else, the following chart illustrates several benefits of Nevada over Delaware:
Nevada’s liberal incorporation laws offer more privacy 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 outside Delaware|
|Report the actual number and value of stock listed|
|Freely exchanges information with other states and the IRS.|
* Effective July 1, 2016 Nevada now has a new “commerce tax” applicable to each “business entity” engaged in business in Nevada with Nevada-sitused gross revenue exceeding $4,000,000 in a taxable year.
**To verify this information, call the state corporate tax department of Delaware at (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.”
In short, Delaware’s state corporate tax amounts to 8.7%. 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.
Also, 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 laws 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.
“The New Kid on the Block” – Wyoming LLCs & Corporations
Wyoming LLCs and corporations add a few benefits to home state incorporation, including privacy, lower fees…This is a common choice for foreign Amazon FBA sellers. A Wyoming LLC will not reveal the identity of the manager in state records. Wyoming may be an excellent choice for your U.S. company, but is it the best choice? It depends on the priority of factors and which is most important to your business. Our packages include a complete analysis of both Wyoming and Nevada (the most popular choices). The best part is we can form either one for you, and our video training will help you make the best decision for your e-commerce business.
Like Nevada corporations, Wyoming corporations does not impose a state corporate income tax or other taxes. And like Nevada, the key is you must have nexus in the state of Wyoming to qualify for the tax savings; otherwise, your Wyoming Corporation or LLC will need to register (or qualify) to do business in the state where you live and operate your business. This will negate any tax savings that Wyoming may have to offer. Even an Internet business must determine where nexus is created in the operation of its business. If you are you based upside the U.S., you can domicile your LLC in either Nevada or Wyoming. Keep in mind; if you are an Amazon FBA seller, some states may require the entity to foreign qualify or register in the FBA states.
“The state of Wyoming does not levy a personal or corporate income tax. Wyoming does not impose a tax on intangible assets such as bank accounts, stocks, or bonds, either. In addition, Wyoming does not assess any tax on retirement income earned and received from another state. Further, there is no legislative plan to implement any of these types of taxes.”
*Nevada LLC filing fees are $425 vs $100 for Wyoming which is a difference of $325 (a Nevada corporation is $725 vs $425 in fees which includes the $75 state filing fee). The question becomes when would it make sense to invest $325 more to form in Nevada vs Wyoming and when is that not necessary? That is what we cover in our videos included in our packages.
Fewer State Fees
Wyoming corporation’s initial state fees are less than Nevada’s. Wyoming does not require an initial list of officers or managers, which will save you $325*, although Wyoming does require a state business license of $100. The key, however, is to evaluate the benefit of Wyoming as the “pivot point” for your business and financial future, not the fees involved.
One of the biggest mistakes made every day is using the main criteria for business decisions, “What do you charge?” Price can be the worst way to evaluate the quality and results of a product or service. True, it’s a factor… but there are so many more important ones. Saving $200-$325 on incorporating fees when you are going to be investing (and must protect) tens of thousands in your business is not a wise decision.
Over $4 Million in Gross Revenue
On June 10, 2016, Governor Sandoval signed the bill,1, thus enacting a new “commerce tax” (effective July 1, 2016) applicable to each “business entity” engaged in business in Nevada with Nevada-sitused gross revenue exceeding $4,000,000 in a taxable year. If a business entity’s Nevada gross revenue exceeds $4,000,000, the excess is subject to tax at various rates that depend upon the industry in which the business entity is “primarily engaged.” If you are a non-resident looking to form a U.S. company and your gross sales are estimated to be above $4 million, then Wyoming may be an excellent choice for you.
Many companies conclude that since LLCs started in Wyoming in 1977, Wyoming must offer the best protection. Let’s be clear: the oldest does not mean the best. Many more cases have gone through the Nevada and Delaware court systems and found stronger levels of protection. Specifically, Nevada vigorously protects officers, directors, and the entity veil itself.
Wyoming corporations allow Nominee Officers and Lifetime Proxies. Attorneys and accountants are often asked to provide an anonymous “company cover” for their clients for added privacy. To do this, you need to appoint nominee officers and directors for the company. NCP recommends that you avoid this strategy because privacy is very different from asset protection.
The critical question here is: How did your assets get into the corporation or LLC? Typically, transferring assets into an entity is done in exchange for ownership of the entity. Therefore you exchange one asset (your cash or real estate) for another (most commonly, ownership interest in the LLC.) Money wired from your personal account to the newly-formed LLC also leaves a trail.
Unfortunately, privacy as a benefit is, in many cases, oversold by slipshod corporation formation services. (Frankly, if you need to hide, there probably is a good reason for that, and NCP would NOT be interested in your business in that situation.)
This may be the best choice for some, primarily if you’re operating with a low budget, and particularly if you’re still equivocating: “I’m not even sure if my business will work.” Your absolute worst option is to operate as a sole proprietorship, so at the very least, you should establish a separate legal entity.
Keep in mind that “simple” and “asset protection” are inversely related. That means if you want more protection for your current and future net worth, keeping it simple (meaning using your home state because it costs less) and not having separate entities for separate assets are recipes for disaster and much more expensive than doing it correctly from the start! The more financial success you enjoy, the more complex your structure should be to protect it. The key here is to outsource these services to a company that can make it easy for you.
But Wait….Planning to Move Out of Your State in the Next Few Years?
Then your best “pivot point” in Nevada. Here’s why:
Imagine you live in and have incorporated your business in California. An unexpected opportunity arises, and a year later, you move to Florida. California has an annual franchise tax fee ($800 at a minimum.) Florida does not. Do you want California to be your state of domicile and now have to foreign register into Florida?
In this case, there’s no advantage to being linked to California. So do you dissolve the California corporation and form a new one in Florida? That strategy means you’d lose 1-2 years of track record, which is very important when it comes to establishing business lines of credit.
If you anticipate even a possible change of circumstances in the next 2-3 years, the best approach is to incorporate or form your LLC in a state like Nevada and foreign register from the start.