Nevada vs. Delaware: Where Do I Form an LLC?

When it comes to incorporating a corporation or forming an LLC, many wonder about the differences between Nevada and Delaware. While both states are popular choices for incorporation, Nevada is often considered the top state to incorporate in. 

So, what’s the difference? It’s essential to take a look at what each state can offer your business. Read on to determine which state makes the most sense for your LLC.

A Business Overview of Nevada and Delaware

Delaware’s well-established corporate laws and respected court system certainly contribute to its popularity. Delaware also offers a business-friendly environment with low taxes and low fees. As a result, over half of the Fortune 500 companies are incorporated in Delaware.

On the other hand, Nevada is renowned for being the go-to incorporation state, particularly for small businesses and startups looking to form an LLC. And, like Delaware, Nevada offers a business-friendly environment and low taxes. 

Factors to Consider:

Taxation

Nevada has become a sought-after state for companies that want to minimize their tax liabilities. Personal income tax, franchise tax, and corporate taxes in Nevada are also non-existent. Moreover, the state does not levy taxes on business shares or personal investments. 

On the other hand, businesses incorporated in Delaware are exempted from corporate income tax if they do not operate in the state. However, Delaware has a relatively high corporate income tax rate of 8.7%. Although it does not impose sales and personal income taxes on non-residents, the corporate tax burden can be a significant factor to consider for businesses planning to incorporate in Delaware.

Legal Protection

Known for its pro-business stance, Nevada offers strong asset protection and limited liability that protect the identity of corporate shareholders, directors, and officers from public disclosure. For example, the charging order protection in Nevada prevents personal creditors of a business owner from seizing control of the company or its assets.

In the case of Delaware, the Court of Chancery has a long history of handling corporate law cases, and its judges have extensive experience dealing with complex business disputes. These factors have led to a well-developed, predictable body of corporate law that businesses find appealing.

Cost of Formation

Delaware’s incorporation fees are generally lower than Nevada’s, with a minimum filing fee of $89 for most corporations, compared to Nevada’s minimum fee of $75 for filing articles of incorporation. However, Nevada has no annual franchise tax, while Delaware charges an annual franchise tax that varies depending on the company’s authorized shares and par value.

Additionally, businesses incorporated in Delaware but operating outside the state are often required to pay a foreign qualification fee in the states they operate in, which can add to the overall cost of incorporation.

Privacy and Asset Protection

Nevada has some of the strongest asset protection laws in the U.S., offering excellent protection for business owners, officers, and directors. Nevada law provides a charging order as the sole remedy for creditors to seize a debtor’s interest in a corporation, LLC, or limited partnership, which ensures that personal assets are safeguarded from being seized in a lawsuit. In addition, Nevada prioritizes the privacy of businesses by not sharing information with the IRS.

On the other hand, Delaware mandates the disclosure of places or operations outside of the state. However, the state allows the use of nominee shareholders, providing an extra layer of anonymity and privacy for the actual owners of the corporation.

Which State Is Right for You?

Ultimately, the decision to form your business in Nevada or Delaware depends on your specific needs and priorities. 

• Asset Protection: If protecting your personal assets from potential lawsuits is a top priority, Nevada may be the better choice due to its strong asset protection laws.
• Privacy: Nevada’s Privacy laws are significantly stricter than Delaware’s. It is almost impossible to obtain information about the owners/shareholders of a company incorporated in Nevada. In Delaware, it is public information.
• Corporate Formalities: Delaware is considered to have more flexible and user-friendly corporate laws, making it easier to manage and maintain your corporation.
• Taxation: While both states offer favorable tax environments for corporations, Nevada does not impose a corporate income tax, which may be advantageous.

The Bottomline

When it comes to incorporating a business, Nevada and Delaware offer their own benefits. Nevada boasts strict privacy laws and a lack of corporate income tax, while Delaware’s corporate laws are known for being more flexible and user-friendly. Factors such as the type of business, industry, location, and future plans should all be taken into account when choosing a state for incorporation. 

Always consult a professional to determine the best option for your situation. You may also call Nevada Corporate Headquarters, Inc. at 1-800-508-1729 to learn more about how we can help with LLC formation in Nevada or Delaware!