When deciding to incorporate, the state in which you incorporate is an important consideration. While you may have heard that Delaware or Nevada offer significant advantages to businesses incorporating in those states, this may not be the case in your specific instance. While some of these business friendly states do not have corporate taxes, this does not mean that you will not have to pay taxes by incorporating in those states.
When you conduct business in a particular state, you will still be required to pay the appropriate amount of tax in that state. You must also register in any state in which you are conducting business. (Also, in addition to paying the fee to incorporate in Delaware or Nevada, you will also have to pay the fee to register as a “foreign corporation” in the state that you are conducting business). So while you may not be paying any corporate tax to the state that you incorporate in, you are not realizing any tax savings (and in fact may be paying extra to register the foreign corporation).
A further danger is that you may be putting your personal assets at risk. Unless you are registered in a state that you are doing business in, you may not be protected by the corporate form. This means that your house, car, or any personal property may be lost in the event that you get sued and lose.
Thirdly, you will raise your administrative costs. Filing in another state means that it is necessary to file paperwork with that state AND the state that you are doing business in. This means that you will be paying an additional set of filing fees, not to mention any required reports that must be submitted to both states.
Lastly, Nevada and Delaware no longer keep officer and director information private. Not only are they no longer confidential, but they will have to be disclosed when registering in the state that you do business in anyway.
Generally, unless there are other, specific circumstances that provide allure to incorporate in another “business friendly” state, small business owners will save time, money, and aggravation by simply incorporating in the state that they do business.
If you have incorporation questions or need help incorporating your business, do not hesitate to call Eric Davis at 412.434.4911 ext 11.
