Delaware Corporations
Most legal professionals recognize that Delaware has some of the most advanced and flexible corporation statutes in the nation. In addition, Delaware courts possess over 200 years of court decisions and legal precedents in corporation law. Other reasons to incorporate in Delaware include:
- Shares of stock owned by individuals that are not residents of Delaware are not subject to Delaware personal income tax.
- Delaware inheritance tax NOT levied on stock held by nonresidents.
- Delaware maintains the only separate court system for business which may be a significant advantage if legal matters arise involving a trial in Delaware.
- A Corporation can be formed quickly and easily (within 2 hours).
- Delaware State legislature is vigilant in properly updating corporation statutes and other business laws.
- Delaware Office of the Secretary of State, the office responsible for all corporate filings in Delaware, operates much like a business rather than a government bureaucracy.
- Fifty Percent (50%) of corporations listed on the New York Stock Exchange are incorporated in Delaware.
- No minimum capitalization requirement.
- One person may hold all officer positions in the corporation (e.g. president, vice president, secretary, and treasurer).
- No state income tax imposed upon Delaware corporations that do not operate within Delaware.
NOTE: Additional Expediting fees and restrictions may apply for Rush services.
Nevada Corporations
In recent years, the State of Nevada has also assumed a pro-business posture. The state of Nevada offers the following reasons as advantages to incorporating in Nevada.
Nevada Benefits:
- No Nevada State Corporate Income Tax.
- No Nevada Taxes on Corporate Shares.
- No Nevada Franchise Tax.
- No Nevada Personal Income Tax.
- No I.R.S. Information Sharing Agreement.
- Nominal Annual Fees.
- Minimal Nevada Reporting and Disclosure Requirements.
- Stockholders are not Public Record.
- Stockholders, directors and officers need not live or hold meetings in Nevada, or even be U.S. Citizens.
- Directors need not be Stockholders.
- Officers and directors are protected from personal liability for lawful acts of the corporation.
- Nevada corporations may purchase, hold, sell or transfer shares of stock.
- Nevada corporations may issue stock for capital, services, personal property, or real estate, including leases and options. The directors may determine the value of any of these transactions, and their decision is final.
Your Home State
While Delaware and Nevada have been historically recognized as offering significant advantages to corporations, some of these “advantages” may not apply to a corporation that maintains “significant business contacts” or “significant shareholder contacts” (a.k.a. "presence") within a particular state.
For example, forming a California corporation for a small business located in California is usually the logical choice for the following reasons:
Filing Fees
An out-of-state corporation (e.g. a Delaware corporation) that will be conducting business in California must "qualify" to do business in California. This "qualifying" requires the corporation to pay filing fees to the California Secretary of State in addition to whatever filing fees were paid in the state of incorporation (e.g. Delaware).
State Taxes
An out-of-state corporation doing business in California will have to pay franchise taxes to California. The corporation may also have to pay franchise taxes in its state of incorporation (even if the corporation is not conducting business in that state). Thus, the corporation is potentially exposed to taxing by more than one state.
Securities Laws
The California Corporate Securities Laws apply to any offer or sale of a security "in this state" regardless of the issuer’s state of incorporation.
Corporate Rules
Regardless of where the corporation is formed, many provisions of the California Corporation Law, for example, apply if the corporation has a sufficient "presence" in California.
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