Why Form in Delaware or Nevada?
The state of Delaware is the most commonly selected state for LLC formation largely for the following reasons:
- Delaware law has been tested and provides predictability.
- Delaware has a separate Court of Chancery that handles Corporation law cases quickly and competently.
- Delaware is perceived as an easy and reliable state in which to form a LLC.
- Delaware allows the owners and managers of an LLC to remain anonymous.
- Delaware has no sales tax or intangible personal property tax.
- No Delaware income tax has to be paid and a business license is not required if the LLC does not do business in Delaware. However, Delaware imposes a $250 annual fee on LLCs.
The state of Nevada is a popular state for LLC formation largely due to the following reasons:
- The State of Nevada does not tax LLC profits. Nevada also has no personal income tax or annual franchise tax.
- As long as your company remains in good standing, its owners and executives have protection from personal liability in a Nevada LLC.
- Nevada does not require a minimum capital investment for LLCs or corporations.
In Your Home State
Generally it is far more cost effective and efficient to choose to form your LLC in the state in which you will conduct the majority of your business. Organizing in a state different from where the LLC will operate could lead to additional problems and costs. Typically, additional organizational and registration costs and fees will apply, such as “foreign qualifications” if you form your LLC in a state different from where the LLC will operate. For example, if an LLC operates a business in the state of Colorado but was organized in the state of Delaware, the LLC will incur dual costs (formation costs in Delaware and the cost of qualifying the LLC to do business in Colorado). In addition, by forming your LLC in a state different from where the LLC will operate you may be become subject to paying franchise taxes and other government fees in more than one state. Generally, LLCs must file separate tax returns for each state in which they do business based on the income generated in each state, regardless of where the LLC was formed. In addition, several states will impose other types of taxes on the LLC such as annual fees, filing fees, franchise fees, and other fees.