Where Should You Incorporate

Every corporation operates under the laws of its state of formation. State laws can vary widely and there are distinctive advantages and disadvantages of incorporating in a particular state. Accordingly, the decision of a state in which to incorporate is extremely important.

Businesses typically incorporate in their home state but it is possible to register as a foreign corporation in their home state and take advantage of select benefits from other incorporation jurisdictions. In some cases foreign state incorporation subjects the corporation to its home state laws and to some extent nullifies the advantages of incorporating elsewhere. If your corporation has flexibility as to where to incorporate, Delaware (home to America’s largest corporations) is a good and popular choice. Many small corporations are registered in Nevada, which has become America's incorporation capital (or Wyoming, which has similar corporate laws).

Some benefits of Nevada include:

• No state income tax, which is important if you are expecting big profits.
• There are no franchise taxes.
• Nevada only requires a current list of officers and directors. Most other states require annual disclosures regarding shareholder meeting dates, business locations, the value of shares issued, and many other disclosure obligations.
• Corporate officers and directors have greater protection than other states. Nevada corporations can eliminate or limit the personal liability of officers and directors for breach of fiduciary duty (except for paying improper dividends). And Nevada also has a shorter statute of limitations to sue officers and directors and provides greater director indemnification features.
• Nevada allows broad indemnification to parties that incur liability on behalf of the corporation. This can benefit insurance trust funds, self-insurance and granting directors a security interest or lien on corporate assets to guarantee their indemnifications. In terms of Asset Protection, Nevada corporate officers and directors can lien the corporate assets to indemnify themselves, providing these individuals with a priority claim over the corporate assets without the need to show an exchange of funds. This is a crucial Asset Protection feature because other states invalidate such self-serving legal arrangements. Unless there is an act of fraud, these Nevada provisions are statute-backed and cannot be voided by the courts. In addition, Nevada corporate shares are treated as LLC memberships and the creditor of an owner can only gain a charging order with little recourse to enforce it.

Nevada corporations are preferred by man legal and financial advisors—and business owners as well. A large selection of firms provide corporate formation services and can act as a resident agent in Nevada. The book How to Establish and Operate Your Own Nevada Corporation (Garrett Publishing) is a great way to learn how to quickly and inexpensively form your own Nevada Corporation. Of course, The Presser Law Firm, P.A. can establish and oversee corporations in Nevada (and every other state), ensuring that all procedures are followed to extract full value of the incorporating strategy.

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