Delaware vs. Nevada vs. Wyoming: Comparing Incorporation Heavens.

It is commonly recognized today that Delaware, Nevada and Wyoming  can all be called "incorporation friendly" states due to their corporative laws and relatively low (or non-existent) fees and taxes. However, how would a person choose between the three? This article runs a comparison between the three states, summarizes the differences, and presents conclusions and tips to help you make a more educated choice of incorporation state.

Delaware is good for big business

In general, Delaware, through its developed legal system and laws protecting shareholder rights, is geared toward the large complex public corporation, whereas and Wyoming are more attractive to the small privately held corporation. Delaware law tends to protect the rights of boards of directors and shareholders, while Nevada and Wyoming tend to favor management.

Does it mean Delaware is not the best place to incorporate your new business? Not necessarily. The choice to incorporate in Delaware depends on the long term goals of your corporation.

Delaware has an excellent body of corporate case law spanning 110 years regarding such matters as management / shareholder issues and mergers / acquisitions, and that's precisely why the Fortune 500 are drawn to this state. Delaware laws tend to be "pro-management" when it comes to minority shareholder disputes. Huge public companies have literally hundreds of such disputes pending in the courts on any given day.

So if you are aiming to grow your company to become a Fortune 500 company (or at least planning it to attract VC investors and possibly go for IPO one day), Delaware's case law offers many insights into what you can and cannot do, and what the likely consequences may be.

Unfortunately, Delaware also has corporate income tax, personal income tax, a state franchise tax, reporting requirements and regulations compelling disclosure of substantial amounts of information resulting in far less privacy for you. That makes Nevada and Wyoming much more attractive for small privately owned businesses.

Nevada or Wyoming?

Here are some things you should consider when choosing between those two states:

1.  Information sharing with IRS:

Nevada is famed as the only state that does not share information with the IRS. Although that fact by itself is true, there are few things that you should know about it.

First of all, Wyoming does share information with the IRS, but only the information given by companies with real assets inside the state. So if you don't have any real estate in Wyoming you are as protected in that regard as in Nevada.

Second, Nevada makes IRS mad. That means if you are in Nevada the IRS is targeting you because you are in a "non friendly" state.

2. Piercing of corporate veil:

The corporate veil separates the assets and liabilities of the company from the assets and liabilities of its owners, thus protecting owners from business risk. Nevada offers the best corporate veil protection available.

Wyoming also has well established criteria concerning the piercing of the corporate veil. Where fraud is not present, a Wyoming corporation that does not co-mingle funds and maintains some form of corporate formalities, including holding meetings of shareholders and directors, will not be pierced.

Many professionals consider Wyoming to be inferior to Nevada in that regard, with others claiming the differences are negligible.

3. State taxes:

There are no state income taxes on people or companies both in Nevada and Wyoming.

However, Nevada is running a deficit and the Nevada State Legislature has been trying to pass a corporate income tax. It came within a few votes of passing a tax last year, and it is thought that they will pass some sort of business tax this year.

Wyoming is not considering any business income tax and does not need to, since Wyoming has a two year budget surplus.

4. Continuance (moving your company to another state):

Wyoming is one of only two states that provides for true continuance in its corporate laws. Many states provide for domestication, but that is not the same thing.

If a foreign corporation decides to domesticate in another state it either creates a new corporate entity in that state or it adds additional domiciles. However, in Wyoming, continuance is a process by which Wyoming creates the legal fiction that the corporation has always maintained its domicile in Wyoming.

Your existing corporation can retain its original incorporation date after becoming a Wyoming corporation. Anyone examining the Wyoming public record will see a corporation dating back as far as your current corporation does. You can promptly become a Wyoming Corporation without losing the many benefits of the longevity and continuity of operation.

Those are just the principle differences between those three popular incorporation states. However, when choosing to organize a business one should consider other states, especially the state where the business will be primarily located, and make the choice based on particular needs of the business. Consider discussing your situation with a licensed attorney or a CPA, familiar with your situation and whatever requirements those states might have for forming your business entity.