For anyone who is considering starting a small business, it is important to consider what type of business structure will provide the best protection for their particular situation. However, once they decide on that business structure, there is another choice which should be made, but which is often overlooked. The option is in which state to incorporate the business.

Most people think that their only option is to simply incorporate their business in the state in which they live. However, where you incorporate a business can have very important consequences of the taxes that must be paid, the future protection from litigation, and even matters concerning privacy.

Now, the fact of the matter is that most states do not differ from one another regarding these issues. In most states you file some type of Articles of Organization or Articles of Incorporation with the state. In addition, you pay fees and taxes to keep the business entity active, and you for certain entities you must file yearly paperwork. However, there are a couple of states where the rules and protections change.

The purpose of this article is to give you information about the advantages of incorporating your business in Nevada or Delaware. These states offer special protections and rights that are not found elsewhere. Of course, for these special advantages, there are some disadvantages.

In addition, it should be understood that the details provided in this article is intended for informational purposes only. The ultimate decision of where you incorporate a business should only be paid after consulting with a licensed legal professional. Every situation is different, and only after understanding your particular situation should such a decision be made.

Nevada

The state of Nevada has a certain mystique to it. When people think of Nevada they usually conjure up an image of casinos, and of the old idea of what happens in Nevada stays in Nevada. Well, in regards to some business matters, this saying is more true than many realize.

One of the biggest advantages of incorporating a business in Nevada concerns the issue of privacy. In most states, when you incorporate a business, the names of those incorporating the business must be clearly listed. This incorporation information then becomes a matter of public record. In fact, most states now have their incorporation records online for people to easily search their contents.

In Nevada, however, the rules are different. The person who is incorporating the business does not have to be listed at all. Instead, the incorporator can register the business entity under the name of a nominee, or someone who agrees to be listed on the incorporation paperwork of a business.

Now, this may seem like a lot of cloak and dagger drama, but the advantages to this can be many. For instance, for a person who does not want snooping relatives to know that he or she is involved in a successful business, this can be the best alternative. Or, for the husband who does not want his ex-wife to know about business dealings, Nevada may be the place to incorporate.

Of course, privacy does come with a price. Most businesses that incorporate using a nominee pay a company for that service. Most companies that act as nominees charge a few hundred dollars a year. However, if privacy is what you need, a few hundred dollars a year can be well worth the price.

Another great advantage of incorporating a business in Nevada is the tax structure of the state. For any business that is successful, paying income taxes on the profits becomes a very big deal. In Nevada, on the other hand, it is not a big deal—in fact, it is a non-issue. Nevada has not state income taxes. So, any money made in the state will not be taxed. That is more money in the business owner’s pocket.

Now, incorporating in Nevada if you do not live in Nevada will require some additional fees. Every state requires that you list a registered agent on the incorporation paperwork. The registered agent is someone in the state that can receive official paperwork, such as from the state or other sources. If you do not live in the state, you will typically have to hire a company that actually acts as a registered agent. These companies usually charge a few hundred dollars a year. The fee can vary, so it is a good idea to shop around.

Delaware

Now, privacy and taxes may be a concern for some, but for others the biggest concern is the threat of lawsuits. If you are creating a business that could be prone to litigation, then choosing Delaware as a place to incorporate your business may be the option.

Delaware is actually the home to a large majority of the companies listed on the Fortune 500. The reason for this is Delaware’s business-friendly environment in settling lawsuits. This state is home to the Court of Chancery. This court dates back to the 1700’s specifically decides cases related to businesses—and nothing else! This allows for lawsuits against companies based in this state to be decided quickly and without years of expensive litigation and appeals. Again, incorporating in Delaware if you do not live in the state will incur fees. You will have to hire a company to be the registered agent for your company in the state.

Changing Your Mind

Now, if have already incorporated a business in your home state, but think that it might be time for a change, this is not out of the question. It is certainly possible to register your business in Delaware, then register paperwork in your home state letting the world know that Delaware or Nevada is now your home state. In fact, as your business grows, it is always necessary to make structural changes.

The bottom line is to do what is best for the nature of your business. It will not always be necessary or prudent for a business to register in one state or another simply because of any one issue. Instead, you need to look at the overall picture of your business, and where you want it to go.