Where to incorporate
Formation state versus where you operate: Delaware, Wyoming, Nevada and the home state compared, from the state guides.
Where you form the company and where it operates are separate questions. The state of formation supplies the corporate law, the court and an annual bill. Every state where the company has staff, an office or enough activity wants it registered there too — foreign qualification — and taxes the income it apportions there. Forming in a no-tax state does not take the company out of its home state's taxes.
Northwind is formed in Delaware and operates in its home state, so it does both: Delaware's annual report and franchise tax, and its home state's registration and taxes. How that works is the compliance track's good standing lesson and the guide to registering in a new state.
Delaware
- Good at
- The corporate law and court investors expect.
- No Delaware income tax if all it has there is its registered office.
- Watch for
- Franchise tax and annual report every March 1.
- A second state's filings, since it operates elsewhere.
- Best for
- Any company that will raise venture capital.
Wyoming or Nevada
- Good at
- No corporate income tax in the state itself.
- Wyoming annual report: Anniversary month; license tax from $60.
- Watch for
- Still qualifies and pays tax where it operates.
- Investor documents are rarely written for it.
- Best for
- A small LLC or holding company with no outside investors.
Your home state
- Good at
- One state's filings, not two.
- No registered-agent fee in a second state.
- Watch for
A move to Delaware later, if it raises money.
- Best for
- A local business that will only ever operate in one state.
Whichever state you form in, the company needs a registered agent there — someone with an address in the state to receive legal papers and the state's notices — and has to stay in good standing by filing its annual reports and paying what it owes.
Form where the law suits the company's future; you will register and pay tax where it actually works regardless.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Anything marked as a convention is ours, not the rule-maker's.
- State authority
- Delaware Division of Corporations, About the Division (opens in a new tab)Why businesses choose Delaware — in Delaware's own wordsFree to read
- 8 Del. C. §132(a) (opens in a new tab)Delaware General Corporation Law — registered office and registered agent (§§131–132)Free to read
- FTB Pub. 3556 LLC MEO (Rev. 09/2021), Annual Tax and LLC Fee (opens in a new tab)California's $800 LLC annual tax, and the LLC fee on total income of $250,000 or moreFree to read
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Foreign qualificationRegistering a corporation formed in one state to do business in another — a Delaware corporation with its office or staff in California files there, appoints an agent there and files that state's annual report. "Foreign" means another state, not another country
- Registered agentThe person or company, with an address in the state, that a corporation must keep to receive legal process and the state's notices. Delaware sends its annual report and franchise tax notices to the registered agent each December
- Good standingA state's confirmation that a corporation exists and is current on its annual reports and franchise taxes. In Delaware a year of unpaid franchise tax makes the charter void; banks, investors and other states ask for the certificate
- State annual reportThe yearly filing a corporation makes with its state of formation and each state where it is qualified — officers, directors, address, and in Delaware the figures the franchise tax is computed from. Names, fees and due dates vary by state
- Delaware franchise taxThe annual tax every Delaware corporation owes for the privilege of being incorporated there, whether or not it does business or makes money there — the lower of the authorized shares method and the assumed par value capital method, minimum $175 or $400, maximum $200,000, due with a $50 annual report by March 1 and prorated in the first year
See also
- Registering in a new state: remote hires and nexusA remote hire or nexus in a new state means foreign qualification, payroll tax accounts and maybe a sales tax permit. What to register, in what order.
- First-year compliance calendar for a Delaware C-corpDelaware franchise tax, 1099s, the federal return, payroll filings, state annual reports and sales tax: the deadlines a young C-corp misses most, by month.
- Delaware franchise taxAn annual tax, filed with an annual report, that every Delaware stock corporation owes by March 1, whether or not it made money.