Where You Should Incorporate
We hope the foregoing review of business entities has been helpful and given you some ideas. All of them have a place, many can be used in conjunction with one another. Corporations have become the quintessential form of doing business throughout the world for more than a century. Just the simple act of incorporating in your home state can protect your personal assets and provide a universe of “fringe benefits” such as retirement plans, deferred compensation, annuities, life insurance, and medical reimbursement plans, just to name a very few. Moreover, many of these benefits may be tax deductible to the corporation and tax-free to the employee (that would be you). Check with your CPA to see if you can make use of some of these benefits. So what state should you incorporate in?
Exploding the Delaware Myth
You may have heard that Delaware is the “incorporation capital” of America. It’s true! More than 60% of Fortune 500 companies are incorporated in Delaware. If you own a Fortune 500 company (and for your sake, we hope you do) then, by all means, you should strongly consider incorporating in Delaware. However, if you are a small- or medium-sized business that is more concerned with tax benefits, flexibility, privacy and a minimum of bureaucracy and “red tape,” then Wyoming is the clear choice for you.
You see, Delaware has an excellent body of corporate case law spanning 110 years regarding such matters as management/shareholder issues and mergers/acquisitions. That’s precisely why the Fortune 500 are drawn to the state of Delaware. Delaware laws tend to be “pro-management” when it comes to minority shareholder disputes. Huge public companies have literally hundreds of such disputes pending in the courts on any given day. So, if you are managing a Fortune 500 company, Delaware’s case law offers many insights into what you can and cannot do, and what the likely consequences may be. Unfortunately, Delaware also has corporate income tax, personal income tax, a state franchise tax, reporting requirements, and regulations compelling disclosure of substantial amounts of information resulting in far less privacy for you. We are always surprised at how many otherwise knowledgeable professionals advise their small business/ entrepreneur clients to incorporate in Delaware. Well intentioned though it may be, it is not sound advice.
Perhaps you’re one of those who received such advice and have incorporated your business in Delaware. It’s not too late! Refer to the preceding section and you will see that we can easily “move” your corporation to Wyoming, while preserving the original incorporation date.
Nevada vs. Wyoming
Perhaps you’re one of those who have read all the web sites that promote incorporating your business in Nevada. The reasons given usually are:
1. Nevada does not share information with the IRS.
Wyoming Answer: Nevada makes the IRS mad. Wyoming does share information with the IRS, but only the information given by companies with real assets inside the state. So the IRS is not targeting you because you are in a non-friendly state (like they may in Nevada).
2. Nevada allows bearer shares.
Wyoming Answer: Nevada’s law did not say anything about bearer shares, but that law was changed in 2007 to disallow bearer shares. If you think you need bearer shares, call us first. You are most likely being misled. All states have outlawed bearer shares.
3. Nevada has privacy.
Wyoming Answer: Go to the Secretary of State of Nevada’s web site and type in a person’s last name and/or first name. You will see a list of all companies that person is a part of in Nevada. Go to the Secretary of State of Wyoming’s website and you will find that the only way to search on a company is by company name. You cannot search using a person’s name.
4. No taxes in Nevada.
Wyoming Answer: No state income taxes on people or companies in Wyoming either and Wyoming is not considering any–, Nevada has.
There are more comparisons in the chart below.
A Side by Side Comparison of Wyoming and Nevada and Delaware
|No state corporate income tax|
|No tax on corporate shares|
|No franchise tax|
|Minimal annual fees|
|One-person corporation is allowed|
|Stockholders are not revealed to the State|
|No annual report is required until the anniversary of the incorporation date|
|Unlimited stock is allowed, of any par value|
|Share certificates are not required|
|Minimal initial filing fees|
|No minimum capital requirements|
|Meetings may be held anywhere|
|Officers, directors, employees and agents are statutorily indemnified|
|Continuance procedure (allows Wyoming to adopt a corporation formed in another state)|
As you can see from the above list, Wyoming has advantages that Nevada does not have.
Also, with the changes that Nevada has made to its laws, in 2003, 2005 and in 2009, Wyoming has become the best state in the nation to incorporate in.
If you are comparing price, Wyoming is about 35% less to incorporate in than Nevada.
Another thing that they will not tell you about Nevada. The state is running a deficit and the Nevada State Legislature has been trying to pass a corporate income tax and it came within a few votes of passing a tax, a few years ago. It is thought that they will pass some sort of business tax, in the next few years.
Wyoming is not considering any business income tax and does not need to. Wyoming has a budget surplus in 2014, as it has for a number of years now. Don’t gamble on Nevada passing a law that could cost you taxes after you incorporate there.