If you're thinking about learning how to incorporate a business, the choice of state is one of the most important initial decisions you'll need to make. You may have heard that Delaware and Nevada are the two best places to form an LLC, and that's because both states are often referred to as "corporate havens" with business-friendly laws, low or no taxes and other benefits.
While choosing to form a Nevada or Delaware LLC may not be in your best interest, if you've already narrowed down your choices to these two states, here are the differences to understand.
While choosing to form a Nevada or Delaware LLC may not be in your best interest, if you've already narrowed down your choices to these two states, here are the differences to understand.
Advantages of a Delaware LLC
While small businesses may not enjoy many benefits by forming an LLC in Delaware, large businesses have a lot to gain. There's a reason more than 50% of all Fortune 500 and public companies are incorporated in Delaware.
Delaware's business law is often viewed as the most flexible in the United States with a unique Court of Chancery that is focused exclusively on business law. The Court of Chancery uses judges elected on merit rather than juries and they issue written judgements, which means there is a great deal of legal precedent to go on.
Corporations enjoy no state corporate income tax if there is no business conducted in the state, although there is a franchise tax to pay. There are also favorable taxation requirements for companies with a lot of authorized shares of stock. Non-residents do not pay personal income tax and members or managers of a Delaware LLC do not need to be residents.
Advantages of a Nevada LLC
While Delaware has the Court of Chancery, Nevada offers its own unique advantages. Delaware was the primary state of incorporation for many years, but Nevada has tried to replicate their success over the last few years in an attempt to bring in new business.
If you chose to form an LLC in Nevada, keep in mind there is no corporate income tax in the state. While you will pay initial and annual statement fees and a fee to get a business license, there is no franchise tax or personal income tax for LLCs. This is an advantage over Delaware, which does charge an annual franchise tax to every Delaware LLC. Like Delaware, members and managers of an LLC do not need to be residents of Nevada.
The Bottom Line
Delaware has its own unique legal system and laws which are designed best for large companies, whereas Nevada favors management and may be a good choice for smaller businesses. Both options are very affordable, although Delaware may be your best choice if you plan to grow your business over the next 5 years. Delaware gets a substantial amount of its revenue from corporate registration fees, so it's in their best interest to keep their state business-friendly. Filing fees and other costs are expected to remain stable in Delaware.
In many cases, a Delaware LLC offers the most benefit, unless you are a very small business and plan to stay that way.
Image: FreeDigitalPhotos.net/Adamr
While small businesses may not enjoy many benefits by forming an LLC in Delaware, large businesses have a lot to gain. There's a reason more than 50% of all Fortune 500 and public companies are incorporated in Delaware.
Delaware's business law is often viewed as the most flexible in the United States with a unique Court of Chancery that is focused exclusively on business law. The Court of Chancery uses judges elected on merit rather than juries and they issue written judgements, which means there is a great deal of legal precedent to go on.
Corporations enjoy no state corporate income tax if there is no business conducted in the state, although there is a franchise tax to pay. There are also favorable taxation requirements for companies with a lot of authorized shares of stock. Non-residents do not pay personal income tax and members or managers of a Delaware LLC do not need to be residents.
Advantages of a Nevada LLC
While Delaware has the Court of Chancery, Nevada offers its own unique advantages. Delaware was the primary state of incorporation for many years, but Nevada has tried to replicate their success over the last few years in an attempt to bring in new business.
If you chose to form an LLC in Nevada, keep in mind there is no corporate income tax in the state. While you will pay initial and annual statement fees and a fee to get a business license, there is no franchise tax or personal income tax for LLCs. This is an advantage over Delaware, which does charge an annual franchise tax to every Delaware LLC. Like Delaware, members and managers of an LLC do not need to be residents of Nevada.
The Bottom Line
Delaware has its own unique legal system and laws which are designed best for large companies, whereas Nevada favors management and may be a good choice for smaller businesses. Both options are very affordable, although Delaware may be your best choice if you plan to grow your business over the next 5 years. Delaware gets a substantial amount of its revenue from corporate registration fees, so it's in their best interest to keep their state business-friendly. Filing fees and other costs are expected to remain stable in Delaware.
In many cases, a Delaware LLC offers the most benefit, unless you are a very small business and plan to stay that way.
Image: FreeDigitalPhotos.net/Adamr