Incorporating in Delaware or Nevada

Delaware vs. Nevada LLC refers to the important decision about where to establish your limited liability company. While many new business owners choose to start an LLC in their home state, some want to avoid heavy-handed tax laws and high start-up costs by forming in a different state. Nevada and Delaware are both popular choices because they have developed corporate-friendly tax structures and legal regulations. If you're considering a Nevada or Delaware LLC, explore the pros and cons of running a business in each state.

Delaware's Business-Friendly History

The state of Delaware reports that it is home to nearly one million business entities, including more than half of Fortune 500 companies. Delaware's popularity among businesses can primarily be attributed to three key structures.

  • The general corporation law provided national leadership on limiting liability for corporate officers and directors, providing relief from exorbitant insurance expenses. It also contains provisions to facilitate the smooth operation of Delaware companies, such as the ability to change structure easily.
  • Since its establishment in 1792, Delaware's Court of Chancery has provided written corporate law that allows business owners to easily operate their ventures legally. This court only handles corporate cases, not criminal or tort cases, which allows business lawsuits to be settled quickly. It offers businesses maximum flexibility in general corporation law interpretations.
  • The Division of Corporations is run by the Secretary of State like a business in and of itself. It provides new and existing Delaware business with easy online access to fee schedules and forms. Registered agents can view and print LLC documents, obtain certificates, and submit filings online. This office is also open until midnight, facilitating fast turnarounds for critical documents.

These elements of Delaware's positive business climate make it the best choice for many new LLCs, but a business attorney can help you decide whether it's the best state in which to set up your new business entity.

Nevada: From Wild West to All Business

While Nevada was home to the second-most out-of-state corporations after Delaware as of 2003, it hosted just 2.66 percent of these companies compared to 91 percent located in Delaware according to data from the Journal of Law and Economics. Despite this substantial gap, Nevada law helps out-of-state corporations who set up shop there in three distinct ways:

  • Protecting businesses from a hostile takeover.
  • Protecting LLC owners from affecting their limited liability by piercing the corporate veil, allowing them to be held personally accountable for business debts and obligations.
  • Almost non-existent corporate taxes. Businesses must pay a $200 annual license fee but are not subject to personal income tax, franchise tax, or corporate income tax as in many other states.

Keep in mind that if you have a family-friendly or conservative business, you may not want to be associated with the gaming and other vices that Nevada is known for.

Delaware vs. Nevada Incorporation

The cost of establishing a corporation in Delaware starts at $89, compared with $400 as the minimum fee in Nevada. In Nevada, this cost includes the officer list and business license, neither of which is required in Delaware. However, Delaware's franchise tax is much higher than that of other states. 

Neither state requires board or business meetings to be held. The company can be headquartered anywhere as long as you have a registered agent in the state where you have formed your business entity. Neither state requires you to hold a bank account or maintain a physical address other than that of the registered agent.

Delaware companies have higher overall rankings with the U.S. Chamber of Commerce. If you do choose to open a bank account in Delaware, it is protected from most creditors excepting the IRS and child/spousal support. This means your bank account cannot be garnished to pay a debt or judgment.

Delaware LLC Controversy

Some states have created their own laws to protect corporations headquartered there from exploiting tax loopholes in haven states such as Delaware and Nevada. Shell corporations, as they are called by the New York Times, are under increasing federal scrutiny for avoiding taxation in their home states.

If you need help with deciding to create your LLC in Nevada or Delaware, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.