CHOOSING THE RIGHT STATE TO REGISTER YOUR BUSINESS IN 2021
The real question is: “Which State do you want to get sued in?”
Embarking on a new business venture can be both challenging and rewarding. One of the biggest challenges a new business owner faces is choosing a state of incorporation or the state in which their business will be registered. Choosing the state of incorporation is a largely misunderstood aspect of starting a new business, creating confusion for even the brightest of business owners.
A business owner can opt to register their business in the same state the business operates in, or they can register the business in a different state. States with lower corporate income tax rates like Delaware, Nevada and Wyoming are attractive options for many new business owners seeking to limit tax exposure of their new ventures. If the goals and needs of the business are not taken into consideration, however, incorporating the business out of state can have the exact opposite result.
Delaware, Nevada and Wyoming may be considered business-friendly states, but none present a one-size-fits-all solution to choosing the right state of incorporation for your business. Each state varies in terms of fees and taxes, meaning the best option for a large public company may be completely different for a small business. Delaware, Nevada and Wyoming may be considered business-friendly states, but none present a one-size-fits-all solution to choosing the right state of incorporation for your business. Below is a brief examination of each state that can help you select the state of incorporation that is right for your business.
Many corporations register in Delaware because of the state’s lucrative tax codes and corporate-friendly laws. Investment bankers often require publicly traded companies to incorporate in Delaware to comply with some securities law requirements. Most Fortune 500 companies are incorporated in Delaware, largely because of the state’s premium justice system.
Delaware’s separate Court of Chancery provides businesses with faster resolutions and more predictable outcomes to business disputes. The Court of Chancery appoints judges with business backgrounds to rule on these cases involving commercial transactions without a jury.
Delaware attracts both large and small corporations because of the well-developed body of case law for corporations, reaching back over hundred years and covering a wide breadth of matters regarding shareholders, management, mergers and acquisitions, and more. The state has no income tax and additionally, Delaware does not charge corporate taxes from corporations which are incorporated in Delaware but do not conduct business in the state.
Nevada is also a popular state of incorporation. It is important to remember that small-business owners must register as a foreign registrant in their own state when they incorporate their businesses out of state. These duplicate filings can result in increased one-time formation fees and an annual compliance burden. With the high cost to file in Nevada, this can cause large expenditures for small businesses.
Nevada makes up for its high administrative costs by being a tax haven for corporations. Nevada does not levy a franchise or income tax on businesses in the state.
Many companies incorporate in Wyoming because the administrative costs are generally lower than in Delaware or Nevada. Unlike many states, Wyoming does not require licensing or filing fees to be paid to complete the process of incorporation.
Wyoming also has personal asset protection laws in place to protect business owners and company officers from losing assets like cars and houses in the event of litigation. The state also takes data protection laws seriously, requiring registered agents to maintain private data for businesses rather than have sensitive data entered into a public database.
To conclude, forming a corporation in a different state won’t necessarily save a business any money in the long run. Incorporating out of state will usually do little for a business unless it conducts its operations in that state. It may sometimes be more beneficial for a business to incorporate out of state; however, it will always cost more upfront to do so.
Incorporating in a tax-friendly state is not an effective strategy for reducing taxes unless the business plans to operate in that state. In general, a business will be subject to the tax laws of whatever state it operates in.
Taking all of this into consideration, Delaware, Nevada or Wyoming may not necessarily be the best place to incorporate your business. Choosing where you incorporate may depend more on the structure of your business and your long-term goals.
You can incorporate your business, find contracts, and download a free COVID-19 liability waiver form from www.GoLegalYourself.com
For more information on how to legally start and grow your business please visit my website at www.golegalyourself.com
Disclaimer: This information is made available by Bagla Law Firm, APC for educational purposes only as well as to give you general information and a general understanding of the law, and not to provide specific legal advice. This information should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.