Why do most companies incorporate in Delaware or Nevada?

Are you starting a business in 2018? Most likely as part of your research Delaware or Nevada would have appeared as a popular choice for company incorporation. More than half of Fortune 500 incorporate in Delaware.

The real reason why most businesses incorporate in Delaware is because of the most flexible legal system across the country.   There are also many other reasons why Delaware is popular.

1. No Corporate income tax :  There is no corporate income tax for companies that are formed in Delaware but do not transact much business there. There is a Delaware Franchise tax that may be applicable. Check with your tax professional for more information.
2. Non-residents taxation : There is no personal income tax for non-residents
3. Company officers residency : The directors, officers, shareholders of a corporation are not required to be Delaware residents.
4. Court system : the Delaware Court of Chancery focuses on business law. Also  Delaware’s legal system uses judges instead of juries.
5. Favorable for companies with complex capitalization structures and large number of authorized shares of stock.

 

Nevada

For many years, Delaware dominated as a popular state for company formations. Few states like Nevada, Wyoming are also becoming popular for company formation.

The main advantages of incorporating in Nevada are :

1. There is no personal income tax or franchise tax for corporations or LLC s.
2. Nevada has no state corporate income tax and does not impose fees on corporate shares.
3. Non-residents : The shareholders, directors and officers of corporation or members/managers do not need to be Nevada residents

Other key aspects to consider :

Please note that even though you choose Delaware or Nevada for the initial registration, you may be still required to register in the home state as a foreign entity. This often results in higher compliance and registration costs. Therefore, you need to do evaluate your business needs before incorporating in Delaware or Nevada. For most service based businesses, it may be best to only incorporate in your home state.

 

*** We do not offer any legal consultation. Contact an attorney for legal advice.

 

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