The unique advantage of forming an LLC is that you don’t necessarily have to register it in the same state where you do business. Once you decided on LLC as the best form of ownership for your business you have the following options:
- register your business in your home state,
- register in Delaware, Nevada, or Wyoming,
- register in New Mexico.
REGISTERING AN LLC IN YOUR HOME STATE
Most businesses get registered in their home state or the state where they do the most business. This is especially true for smaller companies whose goal is to serve the local market and have no wish to expand outside of their home state. It is also the cheapest way of incorporation. Forming an LLC in the state where your business is physically located is called a “home state” incorporation. If you incorporate in the same state where your business is located, then registration is automatic. If you decide to incorporate in a different state, keep in mind that you will still be required to register your company to do business in the state where your business is located.
INCORPORATE IN DELAWARE, NEVADA OR WYOMING
Delaware, Nevada, and Wyoming are typically referred to as "corporate havens" and are the most popular jurisdictions to incorporate business. However, if your business is physically located outside of these three states but you still wish to incorporate it on one of them, by law you are required to re-register in the state where you are actually doing business. For example, if your company was incorporated in Delaware, but your physical office is in Georgia, the state of Georgia will require that you re-register your business as the so-called foreign corporation. Foreign in this case means being originally incorporated outside of the state of Georgia. You will have to re-register in your state to be able to open a bank account, apply for a business license, or lease office space in your state of operation. When you register as a “foreign corporation” your LLC will be subject to all taxes and fees as a home corporation. In other words, by registering as a “foreign corporation” you do not avoid the added expense of registering in your home state, as well as annual fees in both states where your business is registered.
ADVANTAGES OF REGISTERING YOUR BUSINESS IN DELAWARE
Delaware has a reputation around the world as the best and most business-friendly state for incorporation. It is not an accident that more than 65 percent of all Fortune 500 companies and more than half of all U.S. publicly traded companies are incorporated in the state of Delaware.
Below are the reasons why businesses choose to incorporate in Delaware:
Favorable Business Laws and Legal Environment
Delaware has its own court system to resolve business matters. It is called the Court of Chancery and in this Court, judges issue verdicts rather than juries, which makes an outcome of the court procedures more predictable for the corporations.
- Tax Advantages
Delaware exempts holding companies registered in the state from paying corporate taxes. This means that any corporation can register a holding company that will keep the company’s intellectual property in Delaware and will lease it to the entity actually doing business. The holding company in this case will not pay any income tax from the proceeds of the lease. Companies use this peculiarity of Delaware’s tax code to reduce their own tax bill.
- Simplicity of Filings and Maintenance of Records
Delaware has a very straightforward system for registering a business and mainlining its records. In comparison with most other states, the state of Delaware asks for a minimum of personal information from the business owners, its executives, and directors. This makes registering business in Delaware especially attractive for people concerned about privacy. The state also makes reporting easy and quick, and all the reporting on business performance can be done online.
- Reputation
Considering the popularity of incorporating in Delaware over the last 50 years, having your business incorporated in this state also gives you a certain status to prove its legitimacy. Incorporating in Delaware also makes your business more attractive to investors, bankers, and executives, since most of them are very familiar with the way how Delaware’s business laws work.
ADVANTAGES OF REGISTERING YOUR BUSINESS IN NEVADA
Nevada has been a golden child for businesses large and small to incorporate.
Below are the reasons why businesses choose to incorporate in Nevada:
- Business-Friendly Environment with Zero or Low Taxation
According to the State Constitution Nevada, does not collect personal income tax. The State also does not tax any foreign or domestic corporations or LLC. If you are a startup company registered in Nevada you are relieved from paying an inventory tax, which means you don’t need to pay tax on goods that your business holds for interstate transit or sale. As a matter of fact, Nevada has declared twelve Foreign Trade Zones located throughout the state where corporations can store their goods and ship them tax-free. Nevada does not tax gifts, which means you can transfer assets to anyone without having to pay a state penalty tax. Also, the recipient of your gifts or assets will not be liable for paying inheritance tax in Nevada. The State of Nevada has no franchise tax on income or estate tax, so you can pass on your assets to your heir with no penalties. And finally, corporate stock or shares of members in an LLC in the state of Nevada are tax exempt.
- Utmost Privacy Standards
If you register a new business in the state of Nevada you will be able to keep your profile, or profile of your members or other co-owners confidential. By Nevada law, an LLC or corporation is not obliged to record the names of its members or owners. Additionally, investors to your company can also remain anonymous. The fact that in Nevada business owners and investors can keep their confidentiality from the State, makes incorporating in Nevada very attractive. –
- Strong Asset Protection
If your business registered in Nevada runs into financial or legal hardships, the liability will be limited only to your company, your personal assets will remain secure regardless of the position you hold in your company. At the same time, a startup company is not required to register with the State any assets it has, except for the assets you declare with the IRS at the Federal level.
DISADVANTAGES OF REGISTERING YOUR BUSINESS IN NEVADA
- Doing Business in Another State Can Result in Losing Benefits for a Nevada Corporation
Some states, like California, require that if you are doing business in their state you are required to “re-register” your business in that state. So, if you are incorporated in Nevada, but have dealings with clients in California, you will need to register your business in California as well.
- Higher Incorporation Fees
Nevada’s filing fees for incorporation have recently gone up making the State more expensive to incorporate in, than Delaware or Wyoming.
ADVANTAGES OF REGISTERING YOUR BUSINESS IN WYOMING
Wyoming, called “Switzerland of the Rocky Mountains”, got this reputation not just for the striking views, but also for a business-friendly environment. Below are the reasons why businesses choose to incorporate in Wyoming:
- Long History of Incorporation
Wyoming was the first state in the United States to form an LLC (in 1977).
- Low Cost of Incorporation and Annual Fees
When incorporating in Wyoming you can enjoy all the same benefits as Nevada but at much lower filing fees. Currently, the cost of incorporation in Wyoming is $100, and the annual fee is $50.
- Low Annual Maintenance Requirements
Wyoming does not require lengthy reports or multiple forms to maintain business standing of a corporation. The only two things you need to do are to maintain a Wyoming Registered Agent status and file your Annual Report. Unlike Nevada, Wyoming does not require a state business license to operate a business.
- Zero or Low Taxation
Wyoming imposes no business tax on corporations or LLCs and no personal income tax.
- Privacy and Security
Wyoming does not share financial records with outside agencies. It also provides protection for acting members and managers of corporations and LLCs.
- Charging Order Protection
Wyoming is one of only five states in the US that offers charging order protection if an LLC has only one member or owner. This means that if an LLC gets sued, the law will protect the member of an LLC from losing the company or its outside assets
- Flexibility in Terms of Management and Profit Distribution
You can have full management control even if you are not a member or owner of an LLC in Wyoming. This state also offers flexible profit distribution rules to LLCs.
DISADVANTAGES OF REGISTERING YOUR BUSINESS IN WYOMING
• Limited privacy
By Wyoming law, you are required to identify individuals running day-to-day operations in your business.
• Tax advantages are only applicable to Wyoming residents
To benefit from Wyoming zero or law tax advantages for businesses incorporated in Wyoming, you must reside in the state of Wyoming.
WHY CHOOSE DELAWARE, NEVADA, OR WYOMING TO INCORPORATE YOUR BUSINESS?
• Convenience
Businesses can move from one state to another for various reasons and it is much easier to maintain “headquarters” in Delaware, Nevada, or Wyoming without having to constantly register and dissolve in-state companies, change Tax ID Numbers, Registered Agent addresses, etc.
• Reputation
Delaware, Nevada and Wyoming have a global reputation as business heaven for incorporating or starting a company.
• Security
Because of the business-friendly environment in Delaware, Nevada, or Wyoming companies registered there feel more secure knowing that the laws in these states provide better protection to business owners. Also, due to favorable privacy laws, it is easier for business owners to maintain their anonymity.
• Advantages for fast-growing or higher-risk businesses
If your business grows rapidly in a short period of time or operates in the higher risk industry (for example, making fireworks) Delaware, Nevada or Wyoming provide better liability protection than other states. Also, if you anticipate your business’s rapid growth it is smart to choose Delaware, or Nevada right away to avoid inevitable later re-incorporating in the future when your company may need to become public or want to seek venture funding.
• An ability to keep your business “on the shelf” until you are ready to operate a business. If you need a business entity or a bank account to buy or hold property, process transactions with a contractor or receive investments, it is a good idea to register in Delaware, Nevada, or Wyoming. Technically, you will be holding your company “on the shelf” until you are ready to engage in real business.
REGISTERING YOUR LLC IN NEW MEXICO
New Mexico has a reputation as one of the best pro-business environments in the United States. The state is considered to be the more favorable place to register businesses engaged in manufacturing, as it offers the best tax structure for manufacturers. Other advantages to register your business in New Mexico are below:
No inventory taxes
No annual fees to keep an LLC active and very low registration cost. Currently, the fee to register a business in New Mexico is only $50
The lowest property taxes in the country
Low energy costs and affordable real estate
Various incentives for businesses
Protection of your identity as a business owner
The State of New Mexico does not require to list the names and addresses of the members for LLCs on their initial filings. Also, New Mexico does not require an LLC registered in the state to submit an Annual Report to the state. You are required to list a name of a Registered Agent on the Articles of Incorporation; however, you can use a 3rd party professional Registered Agent and continue to keep your name as business owner off any public records.
