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Selecting a state for your corporation or limited liability company

by on
in Employment Law

When small businesses incorporate or form a Limited Liability Company (LLC), they must choose a state jurisdiction in which to form their entity.  Some form Delaware companies regardless of the state where their business is actually operated. 

Delaware corporations and LLCs have enjoyed significant advantages over the years and Nevada has more recently enacted business-friendly laws.  Other business owners choose to form their company in the state where they plan to conduct business. 

Simply choose the option that best fits your needs.

•    Forming a Company in the State Where Your Business is Operated
Many business owners incorporate or form an LLC in the state where they are physically located.  This is typically the least complicated and most cost effective solution.  If you form a Delaware or Nevada company but are located elsewhere, you may then be required to qualify or register in the state where you actually conduct your business.  The cost of a local incorporation or LLC formation will usually be less than incorporating in Delaware or Nevada and then qualifying to do business in your local state as a "foreign" (out of state) corporation.  Plus, you may avoid paying franchise taxes and filing annual reports in two different states. 

•    Advantages and disadvantages of forming a Delaware Company
Over 50% of companies on the NY Stock Exchange are Delaware corporations. Delaware is known as a business-friendly state and is a good choice if you intend to “go public.”  Delaware has many advantages, including very low incorporation and LLC formation fees, low annual franchise taxes, and no state corporate income tax for companies that operate outside Delaware.  Delaware maintains a separate “Chancery Court” specifically for business disputes, known for its well-established record of decisions and speed.  Delaware’s court system helps business owners spend more time running the business and less time in court.  Delaware companies may need to qualify or register to do business in their local jurisdiction, requiring an additional fee to the state where the business is operated. 

•    Advantages and disadvantages of forming a Nevada Company
Business-friendly Nevada has both privacy and tax advantages.  Nevada has no state tax on corporate profits, no state annual franchise tax, and no state personal income tax. Stockholders of Nevada corporations are not a matter of public record, allowing complete anonymity.  Nevada companies may need to qualify or register to do business in their local jurisdiction, requiring an additional fee to the state where the business is operated.  Plus, Nevada’s corporation and LLC formation fees are higher than many other states.   

•    Doing Business in More Than One State
Many companies conduct business throughout the U.S. and abroad.  A corporation or LLC having business locations in multiple states will typically be formed in a single state, then "qualify to do business" in the other states.  When companies formally register in other states, additional franchise taxes and annual reports are required.

Service companies such as The Company Corporation® can assist you in forming or qualifying your company in any state you choose and can assist you in keeping track of your state qualifications.

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