Anybody who has contemplated incorporating a small business has certainly come across a discussion about where to incorporate. Many people may think that this is a topic only for big companies or new businesses with a great deal of start-up capital.
Understanding the ramifications of where to incorporate a small business, however, can be very important to your company’s future. Every business has different concerns. Some must worry about taxes, while others must constantly be on their guard for the threat of lawsuits. Whatever the concern, where you incorporate your business can either alleviate or exacerbate these worries.
The Nevada Phenomenon
Nevada is a very popular state in which to incorporate a small business. The state that is home to Sin City has a business structure that is very friendly to individuals looking for privacy and tax advantages.
One of the concerns of most businesses is a tax liability. At the end of the year, how many dollars will be going to state and federal taxes? In Nevada, the state will not be taking any of your money. Nevada has no state income tax. This can be very appealing, especially if you expect your profits to grow.
Another issue that makes Nevada very appealing to small business owners is the ability to keep involvement or ownership in a business private. Most states make corporate officers and owners a public matter. In fact, most state incorporation records can now be searched online. Nevada, however, allows individuals to incorporate a business in the name of a nominee, instead than in their own names.
Not being listed as the owner or incorporator of a small business can be great, especially if you want to avoid having potential litigants, creditors, or even family members know that you own or are involved with a successful business. What’s more, Nevada is the only state in the country that does not share corporate information with the Internal Revenue Service!
Taking advantage of Nevada’s business-friendly incorporation rules is made much easier by the fact that you are not required to live in the state in order to form a business there. You can live anywhere in the country and still create a corporation in Nevada!
The Delaware Advantage
Depending on what type of small business you are incorporating, taxes and privacy may not be your main concern. For many companies, the threat of lawsuits and years of costly litigation can literally run a company out of business.
Delaware, however, has created a way for business litigation to be decided fairly, but without years of legal wrangling: the Court of Chancery. This court, which dates back to the late 1700s, decides all matters involving business and corporations. The court is known for operating in an expedient but fair manner that has caused Delaware to be the home of a majority of the Fortune 500 companies.
For small businesses that are just starting out, incorporating the state in which you plan to operate the business is the best choice. The issue of taxes will probably not be your biggest concern as you are just beginning. In addition, most businesses, with the right business structure, are not constantly concerned about litigation. Lastly, incorporating in a different state means added costs.
If you do not live in the state where you plan to incorporate, you will have to pay a company to be your registered agent. A registered agent is just a person who is available to receive official mail-such as tax notices and lawsuits. Most companies that do this charge a few hundred dollars a year. In addition, if you decide to use a nominee to incorporate your business, due to privacy concerns, this will be another few hundred dollars.
The bottom line on any discussion about where to incorporate a small business comes down to consulting an experienced and knowledgeable attorney who can evaluate your current and future business plans. Only then, can a decision be made about what will be best for your small business?