Starting A Business: Should You Register Your Company in Delaware or Nevada?

For many entrepreneurs, starting a business is a new experience. One of the first questions one needs to address is where to register the company. Is it better to go with a state like California, Texas or New York, which are more popular and have more established business infrastructures? Or are there benefits to going with less popular destinations like Delaware and Nevada?

“Delaware has a strong tradition of corporate law,” says Paul Caron, tax professor at Pepperdine University School of Law. “The courts are perceived as having pro-business sensibilities.”

This reputation has helped make Delaware one of the most popular states for forming a corporation. As of July 2013, according to an analysis by Harvard Business School professor William Kerr and his colleagues, 43% of all publicly traded U.S. companies were incorporated in Delaware.

Starting a business is an exciting time for any entrepreneur, but it’s also a time when many people are confused about the legal implications of various decisions.

One of the most common questions I get from entrepreneurs starting businesses is whether they should incorporate their company in Delaware or Nevada. If you’re thinking about this question, I’d like to offer my take on the topic.

First, some background: Nevada and Delaware are both considered “tax-free” states, because they don’t impose corporate income tax or franchise taxes on companies that aren’t physically headquartered there. Since both states allow entrepreneurs to form LLCs (Limited Liability Companies), LLCs formed in these states don’t have to pay taxes on the profits generated by their operations.

But beyond this, there are some big differences between incorporating your company in Delaware and incorporating it in Nevada that you should be aware of before making a decision.

If you want to form a big company with public investors, Delaware is the place to do it. Most venture capitalists won’t fund a company unless it’s incorporated in Delaware, because this state has favorable laws for venture capitalists that other states don’t have.

If you plan to raise money from angels or VCs right away, then go ahead and incorporate your company

A lot of small business owners aren’t sure what state they should register their company in.

Some people have heard that Delaware has good laws for small businesses, so they automatically pick Delaware without researching any other options. They never hear about the fact that Nevada has excellent small business laws as well.

In this article, I’ll explain some of the differences between Nevada and Delaware and how those differences can affect your business.

Both states have some great benefits, but they also have a few downsides.

The main reason to register in a certain state is because it has laws that make it easier to run your business. If you don’t want to deal with a lot of paperwork or spend thousands of dollars on legal fees every year, then you should choose one of these two states!

The requirements for starting an LLC or corporation vary from state to state. Some states require an initial filing fee, annual reports and taxes that add up quickly over time. In addition to having lower startup costs than many other states, Delaware and Nevada don’t require you to make regular reports or pay taxes on your company’s profits (unless they are made within those respective states).

A lot of people have asked us about the pros and cons of registering your company in Delaware vs. Nevada. I’ve had some time to look into the issue, and what I’ve found follows below.

There are two major issues you should consider when choosing a location for your business: taxes and liability. I’ll cover each of these topics in detail below.

Taxes

There are many great reasons to incorporate your business in either Delaware or Nevada, from asset protection to reducing taxes. But which state should you choose?

While Nevada and Delaware have many similarities, each state has unique features that make it appealing for certain types of businesses.

This article will compare the benefits of incorporating in Nevada versus Delaware so you can decide which option is best for your business.

To learn more about the benefits of incorporating in Nevada, visit our Nevada corporation formation page.

One of the most important decisions you can make when starting a company is which state to register your company in. While it’s usually advisable to incorporate in the state where your business is based, there are exceptions. For example, if you plan on raising money from venture capitalists or other investors, a Delaware incorporation may be a better choice than an incorporation in your home state because Delaware has a specialized court system (the “Court of Chancery”) that hears cases involving corporate disputes and shareholder rights.

Another option is to register your company in Nevada. Incorporating a business in Nevada has certain tax benefits compared to incorporating in other states, such as no personal income tax, no corporate income tax, and no franchise tax.

In addition to these two options, there are several other states that are popular for incorporating businesses. To help you decide which one is best for you, we’ve put together this guide below on how each state differs from the others when it comes to forming a company.

There is a lot of misinformation out there about the differences between various business entities and their proper use cases. This post is an attempt to dispel some of these myths without referring to a single statute.

1. LLCs are not taxed as S-Corps. LLCs can be taxed as S-Corps if they meet certain requirements (namely, only have one class of ownership, have less than 100 owners, have U.S.-resident owners, etc.). They can also be taxed as C-Corps or even sole proprietorships in certain circumstances.

2. LLCs do not protect you from being sued personally. A properly formed and maintained LLC is a separate legal entity that can be sued in its own right (i.e., “ABC LLC v. XYZ Corp.”). However, in order for this to be the case, you must treat it as a separate legal entity by not commingling assets, using separate bank accounts for it and your personal funds, using its name on all contracts entered into by it, etc., or else you risk “piercing the corporate veil” and being held personally liable for its debts and liabilities

3. Corporations do not protect you from being sued personally in most circumstances