If you have a brick-and-mortar business and are conducting business in a particular state, you have to register your business there. That means that the business has to file reports and pay taxes regardless of whether it was originally formed in that state or not. Generally, it makes no sense to form your corporation in another state and have to do double paperwork and pay double fees. However, if you’re an online-only business, or even a consultancy, you have more options available. Basically, your corporation can reside in a different state than you do, one where the tax laws and infrastructure are more favorable.
Finding that “right state” means doing your research and asking yourself a few important questions about your present and future. You’ll need to know what kind of business you’ll be doing, and if you want to stay private or eventually become public. You’ll need to understand the math of taxes, fees, and budgets, as well as well as understanding your level of community involvement. Now that you’ve answered the important questions, you’re ready to see which options are available.
Nevada, the Tax Haven
Known for its bright lights, big acts, casinos, and legalized prostitution, Nevada’s a pro-business state that’s been called a tax haven. There are no taxes. Corporations and limited liability companies don’t have to pay business income taxes, state corporate taxes, franchise fees, capital gains taxes, or inheritance taxes all thanks to the prolific gaming industry. Company shareholders and members are completely anonymous, and the state has no information-sharing agreement with the IRS, which reinforces the corporate anonymity benefit. If they don’t know what you own, you can’t be sued or forced to deal with related administration issues.
Members don’t have to be U.S. residents and required corporate meetings don’t have to take place in the state or even the country. You are allowed to have a single-member LLC, disclosure is minimal, and stocks can be purchased with anything of value, not just cash.
Delaware, Where Business Gets Decided Quickly
Delaware is also a popular location to form a business, but it’s not necessarily the best bet. There are a lot of advantages here that started in the 19th century. It was one of the first states to privatize government entities, loosening restrictions and lessening tax burdens. The Chancery Court is a special court that renders rulings on business matters, and Delaware is the only state that has it. Unlike other courts, where you have to wait years to get a decision, much less be heard, or where the presiding judge has no business knowledge, traffic in the Chancery court is fast moving, and the judges are business trained. So you’re practically guaranteed swift justice by someone who understands how your business can and should operate.
Which state you choose depends on your objectives. Companies that are planning to do business in many states or even go public find Delaware to be a favorable option. Hundreds of thousands of companies have been formed there. But if you’re looking for asset protection, anonymity, and no taxation, then Nevada is the better choice.