Incorporation

Incorporation - Nevada v Wyoming v Delaware

Kate Hiscox

January 30th, 2014

With the recent posts about LLC's v C corps, I thought I would throw 'where' into the mix. Wyoming is substantially cheaper to maintain than Nevada or Delaware (their requirements/benefits practically mirror Nevada) but is relatively new to the fold of 'corporate friendly' states. Thoughts?

Dave Angelow Board Member at HAND Austin

January 30th, 2014

Hi Kate

The costs are one element and the legal implications another.  From what I've seen whenever "smart money" (big $$$) in involved it's almost mandatory for a Delaware C corp due to legal reasons (I'm sure others can expand on the specifics).  

The result is a pay-me-now-pay-me-later kind of situation.  Perhaps save on fees in the near-term while very early stage and plan to change the legal entity structure later - question is do the savings off-set the future costs if a change is mandated.

Greg Upham

January 30th, 2014

I just had this question answered and it's simple: if you are looking for VC or VC type investment incorporating in Delaware is the one that all of them will know. This just makes things simpler when developing that partnership. Relative to the maintenance costs in my experience they usually aren't very intrusive.

John Adolph ♫ "Some people call me the firm lawyer / Some call me the startup CEO / No people call me Maurice"

January 30th, 2014

Kate,

In addition to being known as a generally corporate friendly state, one reason why so many corporations are formed under Delaware law is the extensive body of case law which has been developed by the Delaware Court of Chancery, a separate court of equity which usually handles disputes over the internal affairs of Delaware corporations.  Neither Wyoming nor Nevada have this advantage. Ultimately though, what should influence your decision is what you plan on doing with your company.  If you are looking to outside investors, VCs, etc. for investment, Delaware is what they are usually more familiar with.  Otherwise, you might consider being more flexible in your corporate approach and figure out what structure works best for your particular company.

Kate Hiscox

January 30th, 2014

Great feedback all - the last LLC we did was in Wyoming. Quick, cheap and easy and I highly recommend it for an LLC. For a C corp, I fully agree with Delaware based on the reasons mentioned here - specifically the existing case law which Wyoming lacks and the Court of Chancery.

Scott Foster Business and Entrepreneurial Attorney at Bulkley Richardson

January 31st, 2014

I have learned something very important from this - I'll be using Harvard Business Services for all of my clients from here on out. That is a bargain! Scott W. Foster 413 272 6258 Sent from my iPhone

Will Glasson Assistant County Attorney, Multnomah County

January 30th, 2014

Short and incomplete response is most accredited investors (sophisticated) would rather rely on the consistent, practiced, battle-tested work of the DE Court to resolve a dispute. Not only are the jurists considered superior, the common law is more developed. Investors absorb all that and believe conducting business in DE will be more orderly, with fewer surprises. 

Juston Brommel Growth Strategist & Advisor to CEOs

January 30th, 2014

Agreed Kate. Most LLCs are going with Wyoming, as they have very favorable laws for privacy, control, taxes, etc. Most high-profile biz guys I know do business there. 

For VC Deleware C Corp is the formula.

Scott Foster Business and Entrepreneurial Attorney at Bulkley Richardson

January 30th, 2014

Generally speaking, organizing an entity in a state other than the one in which you will be doing business (i.e., where you get your snail mail), is a waste of money.  The exception to this rule is if you want to raise serious capital, you'll need to consider forming the entity in Delaware and then qualifying it to do business in your home state.  

You do not save one penny in taxes by forming an entity in another state.  Taxes are either incurred at a federal level (income), a state level (income, sales, some property) or local (some sales, property).  These taxes depend on either WHERE the transaction takes place, WHERE the principal place of business is (the home office) or WHERE the property is located.  Where you are incorporated or organized is not a factor.  

Lots of misinformation out there on this topic - some of which has been repeated by others that have responded to you.  

Ahmad Zahran Non-Linear Thinker | Strategist | Entrepreneur

January 30th, 2014

If you're planning on raising VC money Delaware C-corp always.

Anonymous

January 30th, 2014

Actually, you do have to pay a franchise tax if you incorporated in DE, whether that's a place of business or not. But for LLCs (at least small ones), the DE franchise tax is $200 (or $250, I don't remember).

But I agree that it's probably the best location to set up your company if you plan to raise money or even outsource your accounting and taxes to a local professional (unless you incorporate in your home state, in which case you'll have no problem finding someone local to take care of those admin tasks).

Side question: is it correct to talk about "incorporating an LLC" or does the verb only apply to a C-Corp?