If my company is in California can I incorporate in a different state?
I've heard that most US corporations are in Delaware or Nevada because they are the friendliest to corporations.
I don't have an office or anything, but I'm looking to start an internet based business that would be run from my home office and would just have a PO Box somewhere. Can I incorporate in Nevada?
3 Answers
This type of Q comes up frequently, reflecting the urban-legend status of forming entities in DE and NV.
Short answer: You can, but you probably shouldn't.
Slightly longer answer: You probably should incorporate in CA because if you incorporate elsewhere but do business in CA, you will need to register in CA, too - meaning higher startup costs and paying two states' annual franchise taxes.
This issue is discussed in the following posts:
Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.
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Is there not a conflict of interest here since you are based in california? – Frank 13 years ago
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No conflict of interest - the reasons that I stated are relevant, irrespective of my being in CA. I have helped quite a few clients form entities outside CA when that is appropriate for their business needs. – Dana Shultz 13 years ago
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Interesting. So how is "do business in CA" defined for an internet based company? If I sell to someone in CA? If I physically write the software that is sold in CA? – Abe Miessler 13 years ago
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"Doing Business" means “entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce”.This issue is discussed in "Doing Business in CA? Be Sure to Register" at http://danashultz.com/blog/2010/05/24/doing-business-in-ca-be-sure-to-register/. – Dana Shultz 13 years ago
Dana's comments do not apply to most web or internet business. YOUR INTERNET BUSINESS SHOULD BE INCORPORATED IN NEVADA!!!!! HERE IS WHY!
- The INC Fees are lower
- There is very low annual fees versus the CA 800 year
- There is no state income tax, so you could have dual residency and lower your tax burden
- IMPORTANT! Once you grow, chances are you will realize that you can hire less expensive employees in Las Vegas vs San Francisco. The cost of living is lower, so a customer service rep earning $14 per hour in Vegas sees that as a lot more than someone living in San Jose, LA, or any other real city in california
Its very easy to setup shop in vegas, but live in california. Worst case is that you have to pay state income tax on 100% of your income, but you leave room to reduce that amount easily with dual residency, or just by being a Nevada resident all together.
Cost of living in NEVADA is a bargain. I am surprised more entrepreneurs dont take advantage of it.
If you plan on ever having employees, or dont like paying to much in taxes consider Nevada & Wyoming. Nevada is your safer bet, because it offers low cost of living and still a lifestyle that is acceptable (specially in vegas)
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@Frank You still have to pay taxes in the state you are located in. Even if you incorporate in DE or NV for example, if you do business in CA, you owe that $800 Franchise tax no matter what. But if you can LIVE in DE or NV and do business from there, even better. Most of the reasons it used to be a benefit for incorporating in DE or NV are no longer exclusive to those states. – Michael Pryor 13 years ago
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You are only taxed the 800 foreign corporation tax if you file as a foreign corporation which you are only required to do if your operation is in CALIFORNIA. For SAAS businesses, when starting up, you could incorporate in NV, do all your work in california, and not be considered a FC because you have no operations ANYWHERE. You would still as a california resident have to pay california taxes, but it would be a good reason to setup dual residency, and avoid the taxes as best you could. The tax rate in california is enough to pay for a mortgage on a very nice property in vegas. – Frank 13 years ago
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@Frank if he were an employee of his business in NV, and he lived in CA, his business would have to file CA taxes. having an employee in a state is almost certainly establishing a nexus in that state. Although, technically he could shift most of his business income to NV and only a small portion to CA (but he'd still owe the $800 no matter what in that case) – Michael Pryor 13 years ago
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Not true, I am Living PROOF. YOU ARE WRONG. and its genuine bad tax advice that started for a CA based tax advisor with obvious bias. I spend some of my time in CA, so i file income taxes in california. The income i pay myself is taxed at the california level but since i could run my company from anywhere in the world it doesnt setup a presence here, versus in NV where I have an office and a presence. The only reason California makes sense is if you are going to play the lottery game of trying to give away your company to angels or vc's of which California has no shortage. – Frank 13 years ago
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PS. replied to your Moderator comment about profanity. I'm still having a hard time trying to figure out why this forum would be subject to such sensitivity. – Frank 13 years ago
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@Frank Just because you aren't filing business taxes in CA as an employee of your company doesn't prove that what you are doing is legal. If your company has an employee who is a resident of CA, then that company must legally file CA returns. I am living proof that you are wrong because the business that runs this site is based in NY, registered in DE and has employees in CA and I can verify that we file returns in all of those states. – Michael Pryor 13 years ago
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I am the only employee in california. I pay myself, from my NV companies as an employee. Its not presence because the employee is virtual. Simply put the FOREIGN corporation tax does not apply. I am in no way tied to the SOS in california for any fees. The taxes I pay in california are property taxes, and taxes for my time spent in california. With a NV drivers lic, registred vehicles, and property in the state of NV i am pretty much buttoned up. But in the case of a california resident who wants to avoid taxes, NV makes great sense, plus its a great place to actually do business becaus – Frank 13 years ago
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of the low cost of living. In your example, are you filed as a foreign corporation in CA, and if so it seems like you need to get a better CPA. Without a physical presence in california, the state has no real legal recourse to even try and collect the 800 fc fee even if it were to legally apply. What would they do, place a lien against a business in NV, or personal property owned in the state? I dont think so. – Frank 13 years ago
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@frank Since you are paying yourself as an employee of your company I assume you are listing your address as NV. If you listed your address as CA, every payroll system would prompt you for your CA EDD number so it could withhold unemployment insurance payments for CA. Just because you are not paying CA taxes, doesn't mean you don't have to... – Michael Pryor 13 years ago
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that is a good point, i use my NV residence address. I would have to research and see what happens if you have a CA employee. It would be easy to avoid employees and just have 1099 contractors. I wonder what happens for cities such as Reno or Tahoe? does that mean that businesses in those towns do not hire from the California side? Or do they bend over to the 700 yearly foreign corp tax? Chances are it does not apply. Next time i meet with my CPA i will ask and get you a firm answer, or maybe one that is not biased towards either state can give their 2 cents. – Frank 13 years ago
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+1, even if I'm not sure who's right. The comments were very informative. – Abe Miessler 13 years ago
You definitely can incorporate in Delaware even if you are located in California. Delaware does not require a physical presence and generally has the most pro corporate laws.
