Where to From an LLC

What State Should I Form my LLC In
This is a very important question that bears careful consideration of a number of factors. While you are not required to incorporate in the state of your residence, you must consider things such as analyzing costs of incorporating as a foreign corporation or LLC in another state, the physical location of your facilities, if any, and a careful review of what advantages incorporating in a state other than your own might provide.

The fees, regulations and corporate governing laws vary from state to state, as do the rights and privileges assigned to members, managing members, directors, and boards. It is generally simpler and most cost effective to form the LLC in your home state or state of residence, especially if your LLC will primarily conduct business in just one state. Forming the LLC in your home state will reduce the amount of filings and not subject the LLC to foreign filing requirements and fees. However, there are some very real advantages, depending on the type of business you intend to operate and tax situations you wish to take advantage of, when incorporating in other states such as Delaware and Nevada.

When conducting business in any state other than the one in which you or your business is incorporated in, you will be requires to file a "Foreign Qualification" for that particular state, which will increase the fees and paperwork (e.g. your corporation is formed in Delaware but you wish to conduct business in California, California will require a Foreign Qualification)--not a tremendous hurdle, especially if the business volume warrants the added expense, but definitely worthy of consideration. Consider too that a foreign corporation or LLC, once qualified to conduct business in another state, is subject to franchise taxes and annual report fees from both the state of incorporation and the qualifying state in most instances. The advantage of forming an LLC in a state with very low or no corporate income tax is thus not as great as it may in appear in some instances.

Considerations about Forming an LLC in Delaware or Nevada
Because Delaware and Nevada are commonly recognized as states that are pro-business and suitable for many types of businesses, they tend to be the states that attract "foreign formations."

Delaware is considered to be a corporate haven by many, and is considered to have more "modern" and flexible laws governing corporations formed there, as well as being very business-friendly. As such, corporate and LLC applications are seen as a priority, with excellent service and efficient turn around provided by the local government staff--generally quicker than most other states. Over half of publicly traded companies and more than 58% of the Fortune 500 companies are incorporated in Delaware for the benefits afforded these larger corporations, especially those that "go public," or sell stocks on the open market.

Some of the benefits include:

    A low initial incorporation or LLC formation cost No corporate income tax for corporations incorporated in Delaware but not transacting business in the state. The Delaware Court of Chancery, a separate legal court system, does not use juries, but uses judges appointed for their knowledge of corporate law in dealing with corporate legal decisions. One person can hold all of the officer positions of the corporation, and these names are not required to be listed in the articles of incorporation. Shareholders, directors, and officers of the corporation need not be residents of Delaware. Shares of stock owned by persons outside of Delaware are not subject to Delaware taxes.

Nevada is notable for its lack of state corporate income tax and personal income tax--this can be a boon if taxation is a major consideration. It also allows for a greater level of privacy for corporations and their shareholders. As such, Nevada can be particularly favorable for corporations located in California and other Western US states. While any public corporation can benefit from Nevada's flexible statute, Nevada is particularly attractive to privately-held corporations, as its statute's default provisions geared towards favoring management. As is the case with forming a corporation in Delaware, critics of the formation of corporations in Nevada believe that its laws and courts are excessively friendly to corporations.

Benefits of forming a Nevada Corporation:

    -Flexibility to a Board of Directors in managing the affairs of a corporation, Permitting management to put in place strong protection from hostile takeovers. Courts in that state are more focused on the application of corporate law than the courts of most other states Nevada's courts are developing a strong body of case law that serves to give corporations and their counsel guidance on matters of corporate governance.  Nevada's tax structure is also a large benefit to incorporation in Nevada. Nevada has no franchise tax. It also has no corporate income tax or personal income tax.

Disputes over the internal affairs of Nevada corporations are filed in the Nevada State District Courts, and can be appealed to the Nevada State Supreme Court.