Starting a new business is always exciting. And, you can get started right away with as many startups as you want as a sole proprietor. Choose a name, get a business license, and you're off. The same applies to entrepreneurs in Delaware or Nevada, so choosing a location is not essential.
However, you can run into trouble if your business is a sole proprietorship. It is under your name, so it isn't a separate entity from you. If your business runs into debt or gets sued, you are liable for everything, and all your personal assets, such as real estate or bank accounts, are in jeopardy.
If you want to avoid problems as your business grows, you might want to consider separating your business and personal identities and limiting your liabilities. By incorporating your business as a limited liability company (LLC) or a C corporation, you can do this.
The best legal structure for you will depend on your future plans for the business. Location is also essential, so you need to consider Delaware vs. Nevada LLC's pros and cons when deciding where to incorporate.
A corporation is a legal entity, not a business one, so getting legal advice is always a smart move when deciding to incorporate. However, incorporation is usually a good move because, under the law, a corporation is distinct from its owners and takes on many individuals' rights and responsibilities. As a corporation, it can negotiate loans, sign contracts, own assets, hire employees, pay taxes, and sue or be sued.
Because it is a "legal person" distinct from its owners, a corporation shields its owners from liability and business lawsuits. Entrepreneurs also get financial benefits by incorporating a business in Nevada vs. Delaware, such as tax credits and opening a business bank account in the US.
The benefits of incorporation accrue to both LLCs (S-corporations) and C-corporations, but they are not the same thing. An LLC has members, while a C-corporation has stockholders. It is relatively easy and affordable to start an LLC compared to a C-corporation. However, there are significant variations per state, as you will see when comparing the process of forming Delaware vs. Nevada LLC.
C-corporations may also be subject to double taxation because the corporation pays taxes, and so do the owners. The law also requires C-corporations to hold annual shareholder meetings, and since LLCs don't have shareholders, they don't have to abide by this rule.
However, there is a catch. If you plan to take in investors later on, you will have an easier time with that if your business holds stock, e.g., C-corporation. The more flexible management and less transparent accountability of LLCs can make it difficult to convince people to put money into the business.
Incorporating in Nevada vs. Delaware is a good argument for forming an LLC or C-corporation for several reasons. Delaware is a tax haven in that brick-and-mortar establishments in the state do not have to pay sales taxes, while out-of-state companies do not have to pay corporate taxes. On the other hand, a Nevada corporation is not subject to taxes on corporate income or corporate shares and does not need to pay an annual franchise tax on corporations in the home state.
Both Delaware and Nevada are corporate-friendly states with provisions for commercial litigation. The Delaware Court of Chancery handles corporation cases exclusively with judges, not juries, and processes a filing on the same day. Nevada is the first state to extend charging order protection for corporate shares, meaning a creditor cannot force a shareholder to liquidate stocks to pay a debt. This type of asset protection typically only applies to LLCs, which do not own stocks.
A Nevada LLC vs. Delaware LLC side-by-side comparison can be a little confusing. It is perhaps better to list down the advantages of incorporating startups in Delaware before going to Nevada. That way, you can see what you can expect one way or the other at a glance.
Delaware's advantages for corporations are numerous, although they might not benefit small businesses as much as large ones. Here are the benefits of incorporating in Delaware in brief:
A Nevada corporation has a much shorter list of advantages that are geared more for less complex corporate structures and LLCs. The highlights of these advantages are as follows:
"You should keep in mind that when comparing Delaware vs. Nevada for incorporating your business, tax incentives may be available in your own state. Do research before making a decision either way."
Delaware is popular with large corporations because of the laws, courts, and tax breaks that swing in their favor. However, it is not always the best state for incorporating, as Delaware law does have its drawbacks, especially for small businesses and startups.
Incorporating in Nevada also has its downsides, but not as much as Delaware. The disadvantages of Nevada for corporations include:
It seems clear that in the Nevada vs. Delaware LLC debate, the real question is not the location of filing but the legal structure of the filing. Forming LLCs is much easier in terms of filing, maintaining, and paying than a C-corporation, whether in the state of Delaware or Nevada. The argument that it is easier to get investors as a C-corp is easy to counter: you can convert your LLC to a C-corporation when the time comes.
In the meantime, if you are eager to start your business entity but want liability and asset protection, form an LLC with the help of the professionals from Doola (formerly StartPack), your trusted partner in all things LLC. We handle LLC filings in all 50 states to advise you over your Delaware LLC vs. Nevada LLC conundrum. If you are not a US resident but want to establish a business here, we can help with that as well.
Best of all, Doola is upfront about the costs. In most cases, we charge a flat fee of $349 to process your LLC filing in any state plus the filing fee for that state. Doola also lets you build your StartPack, so you can choose what add-ons you want, such as a registered agent and a US mailing address.
If you want a quick and stress-free way to establish your business entity by forming an LLC in Delaware, Nevada, or any of the US states, Doola is your best option. Contact us now to get started!
Yes, Delaware has corporate-friendly laws, court system, and taxation that can benefit medium to large corporations.
Nevada does not impose personal income tax, franchise tax, state corporate income tax,or fees for corporate shares. However, if you do business in a state outside of Nevada, you may have to pay corporate and other taxes in that state.
You need to consider if the corporate laws and taxes will be to your advantage or if it might be better to incorporate them in another state. Consult with an expert in incorporation before making a decision.
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