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Home / Where Should I Form My Business – Pros & Cons of Incorporating in CA, DE, NV, and WY?

Where Should I Form My Business – Pros & Cons of Incorporating in CA, DE, NV, and WY?

How you choose to structure your business is important in many ways because the rules and regulations vary for each. Those rules and regulations can impact how successful (or not) your business is. From liability issues to taxes to the amount of paperwork you must maintain each year is all dependent on the structure.

Also important is where you choose to form your business. Each state’s laws are different, and inherent to those differences are specific advantages and disadvantages.

Four specific states are often at the top of the list of consideration for any startup company or organization in California, and those states are:

  1. California
  2. Delaware
  3. Nevada
  4. Wyoming

Consulting with an experienced business attorney will assist you to determine which state will help optimize performance and operations. Choosing the right state can go a long way for the success of your business. As an overview, we provide the pros and cons of forming a business in all four of these states. To learn more or to discuss specific advantages and disadvantages for your business, contact Mohsen Parsa at 949-394-6930 today.

The Pros & Cons of Incorporating in Delaware

Delaware is a state that is and has been known to be very welcoming of persons looking to incorporate a business. Due to this welcoming business environment, more than 67 percent of all Fortune 500 companies are incorporated in Delaware even though they do not hold a physical office in Delaware. There are more than 1.4 million legal entities incorporated in Delaware as of 2018 – that says a lot.

That said, though Delaware has laws that benefit businesses, there are also drawbacks of incorporating in Delaware. Here’s an overview of the benefits and drawbacks of incorporating a legal entity in Delaware.

Pros

  • Taxes. You do not have to pay state tax income if you incorporate in Delaware but have your headquarters outside of Delaware.
  • Investments. Investors prefer Delaware given its pro-business environment.
  • Court of Chancery. Judges with specific knowledge and training in corporate law oversee business affairs.
  • Privacy. Important information about officers and directors do not need to be disclosed at the time of formation.
  • Flexibility. Unlike many states, Delaware provides flexibility to corporate and board structure and doesn’t require residence, so you can operate your business from anywhere.

Cons

  • Expense. For small businesses, you may not benefit from corporate-friendly laws in Delaware and may spend too much to form your business without benefiting from the actual advantages the state offers.
  • Small Businesses. As mentioned, Delaware doesn’t cater to small businesses but rather to the larger ones.

The Pros & Cons of Incorporating in Nevada

Nevada is another popular state to form a business. But like in Delaware, there are some drawbacks to consider in addition to all the many benefits.

Pros

  • Taxes. There are no state corporate income taxes, no fees on corporate shares, and no personal income tax or franchise tax for corporations or LLCs.
  • Flexibility. Shareholders, directors, officers, members, or managers do not have to be residents.
  • Privacy. You do not have to list owner names as a prerequisite to incorporation; investors and all interested parties can remain anonymous.
  • Asset Protection. You do not have to list assets, which adds an element of privacy, but you also are protected against liability in all its forms – there are no loopholes in Nevada as there are elsewhere that could trigger personal liability.

Cons

  • Fees. The fees to incorporate are high when compared to most other states.

The Pros & Cons of Incorporating in Wyoming

Wyoming is known for its openness and friendliness toward startups and entrepreneurs. There is, however, one specific drawback that must be considered.

Pros

  • Taxes. There are no corporate state income taxes, no franchise taxes, no personal income tax, and a low sales tax.
  • Fees. Filing fees remain considerably low at under $100.00 per year.

Cons

  • Limits on Privacy. You must identify individuals running day-to-day operations.
  • Remote Businesses. The tax advantages for businesses incorporated in Wyoming are largely only for those who reside in the state.

The Pros & Cons of Incorporating in California

Incorporating a legal entity in California will depend on the nature of your business. But generally, you are right in the middle of an extensive and diverse business ecosystem consisting of large and small-sized companies and organizations. You also have access to a large labor force and a diverse consumer base who can readily work for and make use of your services and products. There are additional advantages to consider as well as drawbacks to be aware of.

Pros

  • Taxes. Taxes are moderate, and even then, California offers a number of tax credits to corporations to help them grow.
  • S corporation. When certain requirements are met, California allows corporations to elect S corporation status, which in turn benefits the company because it is then taxed similar to a partnership.

Cons

  • Taxes. California taxes companies, including franchise taxes.
  • Privacy. You are required to disclose the name of certain top-level officers who are running the corporation such as the CEO, CFO, and the Secretary, as well as disclosing the name of all members of an LLC.

Considerations to Make When Determining in which State to Incorporate

Don’t forget that if you incorporate a business outside your state, you must qualify as a foreign corporation in your home state or where you conduct business. Also remember that you will have to uphold the laws of the state where you incorporate, and this includes annual requirements and fees specific to the state.

If you intend to work and operate your business primarily in California, you should know that if you incorporate outside of California, you may pay double in taxes and annual fees and may have to report annually to two separate states.

Always consult with an experienced business law attorney to make sure the state you choose is the best one for you and your business.

Contact an Experienced Business Law Attorney Today

If you are starting a business and are wondering which state is the right state for your business, contact Mohsen Parsa, Inc. today. As a professional law corporation, we put our resources and experience to work for our clients. As there’s no better time than the present to start your business, contact Mohsen Parsa to schedule a consultation today.