We are frequently asked this question. Corporations are creations of state
law and state laws differ. It can sometimes be advantageous to incorporate
in a particular state. If your corporation operates an active business
in only one state, then it’s probably best to incorporate in that
state, since out-of-state corporations must register as an international
corporation in the home state where it will do business. But if you have
flexibility as to where to incorporate, Nevada is a good choice. So is
Delaware. Many of America’s largest corporations incorporate in
Delaware, with its exceptionally debtor-friendly laws. Delaware also offers
certain tax advantages for larger corporations. However, the smaller business
may find Nevada more advantageous; (though Wyoming’s corporate laws
follow Nevada’s). Nevada is state tax-free. Most importantly, Nevada’s
corporate officers and directors have broader liability protection. For
example, Nevada corporations limit the personal liability of officers
and directors for breach of fiduciary duty (other than improper dividend
payments). Nevada imposes a short statute of limitations for creditors
to sue. Nevada also allows broader indemnities for officers or even stockholders
who incur liability on behalf of the corporation. For instance, corporate
directors can take a security interest or lien on corporate assets to
guarantee their indemnifications. This can be quite useful for asset protection.
Other states invalidate these self-serving legal arrangements. Nevada
also better protects the corporate shares. It limits a stockholder’s
creditor to a charging order, in the same way an LLC does. That feature
is unique to Nevada. But no state is perfect. For instance, Nevada corporations
have double the IRS audit rate. And contrary to myth, you really can’t
issue bearer shares with Nevada corporations to disguise your ownership.
So the choice of jurisdiction as to where to incorporate is a mixed bag.
It involves a number of considerations that must be decided by both your
attorney and accountant.