Add another layer to your #Business literacy. We at Serebral360° would love to know if the Forbes – Entrepreneurs article was helpful, leave a comment, like and share. Let’s dive in and discuss the information and put it to use to grow your business. #BusinessStrategy #ContentMarketing #WebDevelopment #BrandStrategy
Info@serebral360.com 762.333.1807 www.serebral360.com
Grap a copy of our NEW Business Stratgety Books #FFSS VOL1 and #FFSS VOL2
Embarking on a new business venture can be both challenging and rewarding. One of the biggest challenges a new business owner faces is choosing a state of incorporation or the state in which their business will be registered. Choosing the state of incorporation is a largely misunderstood aspect of starting a new business, creating confusion for even the brightest of business owners.
A business owner can opt to register their business in the same state the business operates in, or they can register the business in a different state. States with lower corporate income tax rates like Delaware, Nevada and Wyoming are attractive options for many new business owners seeking to limit tax exposure of their new ventures. If the goals and needs of the business aren’t taken into consideration, however, incorporating the business out of state can have the exact opposite result.
Delaware, Nevada and Wyoming may be considered business-friendly states, but none present a one-size-fits-all solution to choosing the right state of incorporation for your business. Each state varies in terms of fees and taxes, meaning the best option for a large public company may be completely different for a small business with limited activity or few investors. Below, we will examine each of the above states to help you select the state of incorporation that is right for your business.
Many corporations register in Delaware because of the state’s lucrative tax codes and corporate-friendly laws. Investment bankers often require publicly traded companies to incorporate in Delaware to comply with some securities law requirements. Most Fortune 500 companies are incorporated in Delaware, largely because of the state’s premium justice system.
Delaware’s separate Court of Chancery provides businesses with faster resolutions and more predictable outcomes to business disputes. The Court of Chancery appoints judges with business backgrounds to rule on these cases involving commercial transactions without a jury. Delaware also has the Delaware Asset Protection Trust to protect personal assets from creditors in the event of litigation.
Delaware attracts many corporations because the state has no income tax. Additionally, Delaware does not charge corporate taxes from corporations which are incorporated in Delaware but do not conduct business in the state. The state levies an annual franchise tax on the par value of common stock. The franchise tax starts at $75 plus a $50 filing fee and can reach up to $180,000.
Most states charge an annual fee to maintain a company in the state. In the state of Delaware, it costs $225 for corporations or $300 for LLCs. Typically, registered companies are required to submit an annual report to the registrar’s office along with the fee. Delaware also requires businesses to name a registered agent with a physical Delaware street address at the time of incorporation. The registered agent receives legal documents on behalf of the business.
Nevada is also a popular state of incorporation. Not unlike Delaware, investment bankers often require publicly traded companies to incorporate in Nevada to ensure compliance with securities law requirements.
When a corporation is formed, a one-time filing fee must be paid to the government office that oversees business registration in the state of incorporation. The fee to register in Nevada is $725, the highest in the country. Many states also charge an annual fee to maintain the corporation. Nevada, one of the most popular states to register in, has an annual filing fee of $325.
It is important to remember that small-business owners must register as a foreign registrant in their own state when they incorporate their businesses out of state. These duplicate filings can result in increased one-time formation fees and an annual compliance burden. With the high cost to file in Nevada, this can cause large expenditures for small businesses.
Nevada makes up for its high administrative costs by being a tax haven for corporations. Nevada does not levy a franchise or income tax on businesses in the state.
Many companies incorporate in Wyoming because the administrative costs are generally lower than in Delaware or Nevada. Unlike many states, Wyoming does not require licensing or filing fees to be paid to complete the process of incorporation. The only fee Wyoming charges is an annual filing fee to maintain the corporation, which is $52.
Wyoming also has personal asset protection laws in place to protect business owners and company officers from losing assets like cars and houses in the event of litigation. The state also takes data protection laws seriously, requiring registered agents to maintain private data for businesses rather than have sensitive data entered into a public database. Wyoming doesn’t require business owners to be U.S. citizens in order to incorporate, however, there are certain exceptions. Businesses from countries like Cuba, Zimbabwe, Burma and North Korea are not eligible to incorporate in Wyoming.
Wyoming ranks third in the nation for fiscal health and is one of the few states in the U.S. that has a budget surplus. Because of the thriving fiscal health of the state, Wyoming does not collect corporate or personal income taxes.
Forming a corporation in a different state won’t necessarily save a business any money in the long run. Incorporating out of state will usually do little for a business unless it conducts its operations in that state. It may sometimes be more beneficial for a business to incorporate out of state, however, it will always cost more upfront to do so.
Incorporating in a tax-friendly state is not an effective strategy for reducing taxes unless the business plans to operate in that state. In general, a business will be subject to the tax laws of whatever state it operates in.
March 4, 2019 at 08:32AM
Forbes – Entrepreneurs