Home State vs. Nevada Incorporation?

[DerekPankaew]

Hey Guys,

We're starting a web-based company that does NOT plan to take VC or investor money. We'll sell information products, CDs, DVDs, eBooks, etc. We're based in California. I'm wondering what the pros and cons to incorporating in state versus out of state are? From what I can tell:

- Incorporating in Delaware is good for VCs, but doesn't really matter for what we're doing.
- Incorporating in Nevada seems cheaper, both upfront and long term tax wise.
- Online sites say that incorporating in Nevada will require more paperwork, but I can't really get any more specifics.

What are the pros and cons to incorporating in state versus out of state for our situation? Thanks guys

 

[BigMouthWino]

Hey Guys,

We're starting a web-based company that does NOT plan to take VC or investor money. We'll sell information products, CDs, DVDs, eBooks, etc. We're based in California. I'm wondering what the pros and cons to incorporating in state versus out of state are? From what I can tell:

- Incorporating in Delaware is good for VCs, but doesn't really matter for what we're doing.
- Incorporating in Nevada seems cheaper, both upfront and long term tax wise.
- Online sites say that incorporating in Nevada will require more paperwork, but I can't really get any more specifics.

What are the pros and cons to incorporating in state versus out of state for our situation? Thanks guys

Incorporating in Nevada is not a whole lot cheaper soup to nuts. You are going to have to have a registered agent and also pay a State Business License fee each year of $200. You might look into Wyoming. Very cheap to file, no state corporate income tax and only $50 a year to maintain. You will still have to pay a registered agent, this runs around $100 a year.

 

[davew128]

Incorporating in Nevada is not a whole lot cheaper soup to nuts. You are going to have to have a registered agent and also pay a State Business License fee each year of $200. You might look into Wyoming. Very cheap to file, no state corporate income tax and only $50 a year to maintain. You will still have to pay a registered agent, this runs around $100 a year.

Nice of you to mention the tax burden in the state they OPERATE in. Dolt.

 

[DerekPankaew]

So, it looks like state corporate income tax in California is 8.84%. That's *enormous* wow. We're expecting this to be a mid six figure business eventually, so that's significant.

However, if we're incorporating as an LLC, is that still a concern? My understanding is that LLCs are just passed through and taxed as personal income. Once we hit a certain level, we'll probably try to be taxed as an S-Corp; at which point the state corporate income tax would probably matter more. So I'm thinking we shouldn't file in California after all ...

 

[davew128]

Not filing in California would rob you of the ability to assert corporate laws as a shield. It's ALSO willful failure to file a tax return which can be a criminal offense. Point being, you bought into the "Nevada doesn't have a corporate tax scam", which although true has no relevance to the fact you are in California and subject to tax as such.

 

[tranquility]

We're based in California.

From:
http://www.taxes.ca.gov/Income_Tax/limliacobus.shtml


Registering to Do Business in California

All domestic and foreign limited liability companies doing business in California are required to register with the California Secretary of State. Domestic limited liability companies that do not register with the California Secretary of State are not considered to be limited liability companies.

For more information about registering a limited liability company, you can call the Secretary of State's Limited Liability Company Unit at (916) 653-3365, or visit their Website at: www.ss.ca.gov.
Doing Business in California and In Other States

Limited liability companies that do business in California and other states must apportion their income using Schedule R, Apportionment and Allocation of Income.

Example: In 2000, a Nevada limited liability company opens an office in California. Since the limited liability company is doing business in both Nevada and California, it must file a California Form 568, Limited Liability Company Return of Income and use Schedule R to apportion income between the two states.

 

[BigMouthWino]

So, it looks like state corporate income tax in California is 8.84%. That's *enormous* wow. We're expecting this to be a mid six figure business eventually, so that's significant.

However, if we're incorporating as an LLC, is that still a concern? My understanding is that LLCs are just passed through and taxed as personal income. Once we hit a certain level, we'll probably try to be taxed as an S-Corp; at which point the state corporate income tax would probably matter more. So I'm thinking we shouldn't file in California after all ...

For tax purposes both S-Corps and LLCs will offer you pass-through taxation. The corporate income tax applies to profits left in a C-Corporation at the end of the tax year.