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Making the choice of the state in which you will
initially form your corporation should often be based upon a
combination of legal, tax, marketing, distribution, and other
factors. For that reason, we recommend you seek advice from your
team of advisors, including your attorney, accountant, marketing,
and other professionals. In some states, for example, you might
experience a higher cost of doing business because of such things as
inventory taxes, which might not apply in another state.
If, on the other hand, it is the ability of your management team to
build and retain personal wealth, the issue of state income tax may
be more important to you. Incentives given by states for starting,
acquiring or expanding a business, may exceed benefits of low income
or inventory tax. Locating in the center of your market area, or
near a major transportation hub, might likewise give a competitive
advantage to your business, which will allow you to grow the company
much more effectively and profitably than if you had located
elsewhere just because of tax issues. All of these factors, and many
others, should be considered before deciding where to incorporate.
Clients will periodically ask me if there is any advantage to
initially registering their corporation in Delaware or Nevada, as
opposed to in their home state, or the state in which they will
transact most of their business. When I was in law school, over
thirty years ago, Delaware had gained a long history of being
considered a more favorable home for corporations, than most other
states. This was primarily because the laws in Delaware had been
drafted to be more protective of the privacy of corporate
information, and generally more liberal, in terms of what rights and
powers corporations had, as opposed to those of shareholders,
creditors, etc. Nevada has also gained a reputation as a favorable
state for incorporation. This, like Delaware, is primarily based
upon privacy of corporate information and liberal tax treatment.
Over time, however, other states realized they were losing business
and dealt with this “competitor” state by making changes in their
respective laws, with an intent to rival those of Delaware.
Each state also has more or less paperwork, varying fees, etc. In
Kentucky, for instance, corporate filing fees are a minimum of
$50.00 at the state level, plus approximately $9.00 at the county
clerk level. In Indiana, the filing fee is $90.00 at the state
level, but there is no requirement to file with the county clerk.
Most states require “foreign corporations” (i.e. a corporation not
originally organized under the laws of that state) to register as a
foreign corporation, if they are transacting any business in the new
state. This process typically involves the additional time and
expense of obtaining documents from your home state of
incorporation, showing your company to be in “good standing,”
filling out a registration document in the new state, and paying a
fee in the new state. This fee is often substantially more than it
would be if you had organized in the new state originally. The
result is registration fees and paperwork in two states, rather than
just in one, plus annual or other periodic paperwork and fees. For
this reason alone, it is wise to pick your state of incorporation
wisely.
In addition to the duplication of fees and paperwork referenced
above, most states require a corporation to maintain an “agent for
service of process” in that state. This is true of both your “home”
state and any “foreign” state where you have also registered your
corporation. This can result in a substantial additional expense.
Unless you actually maintain a company office or facility in the
“foreign” state, you may have to pay for the services of a corporate
process agent. This service is provided by a multitude of companies,
for a fee. Typically, there is an initial fee to the agent company,
plus an annual fee.
For information on what Delaware and Nevada say about why you might
want to form your company there, read on. The following excerpts are
taken from the respective secretary of state’s Web sites. The
language is theirs, not ours.
Delaware
Delaware Secretary of State Web site home:
Delaware Secretary of State Web site home page
Delaware Secretary of State, Division of Corporations’ page: Why
Choose Delaware as Your Corporate Home?
Delaware
Secretary of State Division of Corporations
More than half a million business entities have their legal home in
Delaware including more than 50% of all U.S. publicly-traded
companies and 58% of the Fortune 500. Businesses choose Delaware
because we provide a complete package of incorporation services
including modern and flexible corporate laws, our highly-respected
Court of Chancery, a business-friendly State Government, and the
customer service oriented Staff of the Delaware Division of
Corporations.
Nevada
Nevada Secretary of State Web site home:
Nevada Secretary of State Web site
home page
Nevada Secretary of State’s page: Why Incorporate in Nevada?
Nevada
Secretary of State incorporation information
No Corporate Income Tax
No Taxes on Corporate Shares
No Franchise Tax
No Personal Income Tax
No I.R.S. Information Sharing Agreement
Nominal Annual Fees
Minimal Reporting and Disclosure Requirements
Stockholders are not Public Record
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Additional Advantages
Stockholders, directors and officers need not live or hold meetings
in Nevada, or even be U.S. Citizens.
Directors need not be Stockholders.
Officers and directors of a Nevada corporation can be protected from
personal liability for lawful acts of the corporation.
Nevada corporations may purchase, hold, sell or transfer shares of
its own stock.
Nevada corporations may issue stock for capital, services, personal
property, or real estate, including leases and options. The
directors may determine the value of any of these transactions, and
their decision is final.
Other States
To see what other states say about their requirements, processes and
fees, visit the National Association of Secretaries of State links
page, which provides an alphabetical listing of all state secretary
of state sites, using the respective state’s flags as the link:
National Association
of Secretaries of State
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