How To Form A Business
There are so many decisions to make when starting a business – what product or service are you offering, have you chosen a name that accurately reflects your business, do you need a physical location, and so much more.
Every single decision can be time consuming and overwhelming, but the most important thing to remember is to do your research. Make sure there is a demand for your product or service, ensure that another business doesn’t have your name, and make sure your physical or virtual location makes the most sense for your company.
One of the most important decisions is deciding the best state in which to incorporate. Your home state makes a lot of sense, as you need just one registered agent, have one set of rules, regulations, and laws to know, and pay fees to just one state.
Although it may be less expensive to incorporate in another state, if you conduct the majority of business in your home state, you may actually save money by incorporating elsewhere.
However, incorporating in a state other than your home state might be a smart option if you transact a majority of your business outside of your home state, e.g. consultant work. Keep in mind that you’ll still have to qualify as a foreign corporation in both your home state and the state in which you choose to incorporate.
For similar reasons, starting a business in Delaware, Nevada or Wyoming are the most popular options for out-of-state incorporations.
Starting A Business In Delaware
The most appealing factor of incorporating in Delaware is that their business laws are among the most flexible in the country. The Court of Chancery focuses specifically on business matters, so instead of juries resolving cases, a judge who is well versed in business matters settles the dispute. Typically, cases are handled faster and with more business-specific expertise than those cases that go to general courts.
Delaware also touts no state corporate income tax for companies formed in Delaware but not conducting business there. However, they do impose a franchise tax, which is an annual fee that’s required to maintain good standing with the state.
Other notable advantages include:
- No personal income tax for non-residents
- Shareholders, directors, and officers of a corporation, or members and managers of an LLC, are not required to be Delaware residents
- Persons who own shares and reside outside of Delaware are not subject to Delaware taxes
Starting A Business In Nevada
Similar to Delaware, the state of Nevada also has no state corporate income tax (although there is a “Commerce Tax” on businesses whose gross revenue exceeds $4 million within a taxable year), no personal income tax, and imposes no fees on corporate shares.
While Nevada doesn’t require a franchise tax for corporations or LLCs, you will have to pay the initial and annual statement fees as well as any necessary business-license fees.
Other benefits of forming your business in Nevada include:
- LLC owners can remain anonymous in public filings
- Shareholders, directors, and officers of a corporation, or members of an LLC, are not required to be residents of Nevada
- Annual meetings and operating agreements are not required to stay compliant with state law
But perhaps the most appealing benefit of incorporating in Nevada is that they do not share financial ownership information with the IRS.
Starting A Business In Wyoming
Similar to Delaware and Nevada, Wyoming does not tax business income and there is no franchise taxes imposed in the state. There are also no state taxes, no citizenship requirements for foreign businesses, and no business license fees or officer filing fees in Wyoming.
Like Nevada, Wyoming does not list the manager or members in any public database, and, in fact, they do not even keep a record of this information with the state. In addition, LLCs are not required to have a Board of Directors, an annual meeting, or minutes.
The most interesting aspect of starting a business in Wyoming is the lifetime proxy, the only state that offers this benefit. Essentially, the lifetime proxy allows someone else to hold your shares of the business as a proxy and to vote on your behalf.
The bottom line
The decision on where to file your LLC or incorporate your business requires as much thought and research as the other decisions you must make when forming your business. Make sure you understand the fees and obligations of your home state compared to a “foreign” state, and that you fully comprehend the foreign qualification requirements for forming your corporation or LLC. By doing your homework now, you can make an informed decision that sets you up well for the lifetime of your business. This will help determine if starting a business in Delaware, WY, or NV is a good idea for you.
Business Filing Section