As an entrepreneur, you know that incorporating your business can be a wise move to minimize your liability, protect your personal assets, even provide tax savings in come cases. However, navigating the various logistical and legal requirements isn’t always easy, particularly when you don’t want to spend countless hours buried deep in legal fine print.

I cannot tell you how many times I’ve heard entrepreneurs wonder where they should incorporate their business and their questions normally boil down to a debate between two states: Delaware and Nevada.

Delaware and Nevada are both popular states for incorporation for good reason. Many larger corporations choose Delaware because it offers some of the most developed, flexible and pro-business statutes in the country. Nevada is increasingly becoming a popular choice for businesses due to its low filing fees, as well as the lack of state corporate income tax, franchise tax and personal income tax.

Because the benefits of incorporating in Delaware or Nevada may seem attractive, it is not always beneficial for your business. When a business incorporates “out of state” such as in Delaware or Nevada, they may be responsible for additional filings and fees in both the state of incorporation as well as the state where they live and run their business.

These can include:

For the State where a business incorporates:

• The appointment of a Registered Agent in that state
• The fees of the Registered Agent in that state
• Paying filing fees in that state
• Filing annual reports in that state

For the State of residence:

• The appointment of a Registered Agent in this state
• The fees of the Registered Agent in this state
• Paying filing fees in this state
• Filing annual reports in this state
• Qualifying as a Foreign Corporation to do business in this state
• Paying taxes in this state

Just because you incorporate your business in Delaware or Nevada does not mean those are the only state tax laws that apply to your business. Nevada may not charge state income taxes for your corporation, but the state where your business is physically located will come after you for those taxes sooner or later.

Pretty soon, any benefits for incorporating in Delaware or Nevada are quickly washed away with the added fees and added paperwork of operating out of state. There is certainly truth behind the hype of these business-friendly states, however, those benefits are really limited to larger businesses.

Most small businesses never see these benefits and end up with a lot more headaches and costs than they ever anticipated. As a general rule of thumb, I like to say that if your corporation or LLC has less then five shareholders or members, it’s best o incorporate in whatever state your business has a physical presence. So, unless your company has a physical office in Delaware or Nevada, it’s going to be much easier and less expensive in the long run to incorporate or form an LLC in your home state.

If you are a small business owner, you will have more than your share of paperwork and fees as it is and there is no reason to complicate your workload by trying to operate out of state. While you do want to take full advantage of all potential tax breaks, in this case, the simplest route of incorporating in your own state turns out to be best.

For more information on how to legally protect your business please pick up a copy of my bestselling book: ‘Go Legal Yourself’ on Amazon or visit my website at www.baglalaw.com

Disclaimer: This information is made available by Bagla Law Firm, APC for educational purposes only as well as to give you general information and a general understanding of the law, and not to provide specific legal advice. This information should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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