Nevada vs Delaware LLC Formation: What's in Common?
Nevada and Delaware can boast a large number of headquarters and subsidiaries of well-known global brands. Both states compete with each other in many ways, however, when comparing Nevada LLCs vs Delaware LLCs, one can notice quite a few similarities as follows:
Neither Delaware nor Nevada requires mandatory in-state meetings or a separate bank account. You don't have to list a physical office address or even a mailbox in the Certificate of Formation - just your registered agent's address;
Both states provide only partial confidentiality to LLC members and managers. In Nevada, managers are listed on the Certificate of Formation, while Delaware does not require such information. However, all documents your company files with Delaware's Division of Corporations are publicly available, including those that contain manager lists;
Delaware and Nevada, like most other states, allow member and owner data to remain confidential.
Delaware LLC vs Nevada LLC: Differences
When comparing Delaware vs Nevada LLC, you're certainly more interested in the differences. After all, they are the ones that help you figure out which of the two states is better for your business. Let's take look at the information about each of these states in detail.
Nevada LLC Formation: Pros and Cons
Nevada is considered one of the most attractive states to form an LLC. The service sector, gaming, and IT spheres are booming here along with many others. In 2022, the state government continues to develop various programs to help small and medium-sized businesses, including startups. A list of such programs can be explored on the official website of the Nevada Secretary of State. Another advantage is simple and favorable taxation.
No personal income tax or franchise tax for LLCs and the state doesn’t tax corporate profits or shares for small LLCs.
Charging orders apply to more situations in Nevada.
A multi-state litigation aspect may eliminate the charging order advantage for your LLC as well as Nevada’s privacy standards.
High level of privacy. Company founders and owners can count on confidentiality.
If litigation is between companies that operate in different states, confidentiality rules can be violated.
There are no requirements to hold business meetings or gatherings within the state.
Large companies (with revenues of $4 million or more) pay income tax. Thus, if you own, say, 5 or 10 LLCs in Nevada, which make $40 million in total revenue, you will be taxed on $36 million in revenues beyond the specified limit.
Non-residents can be shareholders, directors, and officers of corporations or members and managers of LLCs.
LLC managers are not subject to confidentiality rules.
Nevada LLC: Advantages
Let's talk in detail about each of the benefits for LLCs in the state of Nevada:
Small companies do not have to pay income taxes. The state of Nevada does not have an income tax department. You also don't have to pay franchise or corporate stock taxes here, the same goes for personal income tax;
Efficient courts. There are no publicly binding precedents. When deciding your dispute, the court will consider all the specifics of your business and delve into the situation in detail. In Nevada, business court decisions are confidential;
In most cases, a fee order is used. It's a court order that protects the interests of creditors and investors. It's the basis for the mandatory court-ordered fees. The court order is sent to the legal entity, not to the founders, members, or shareholders. So the personal savings of the LLC members are protected. In Nevada, the vast majority of judgments use this type of order;
LLC founders and owners have a high level of privacy. In Nevada, unlike many others, lists of LLC owners, shareholders, and members are not public. Therefore, you can maintain confidentiality even if you apply for LLC registration or issue different types of stock;
No requirements to hold business meetings or gatherings in the state. Your company can have its main office in any state or country. You have the right to hold business meetings wherever you want, without any restrictions. However, you want to make sure you have a reliable registered agent in Nevada.
Nevada LLC Disadvantages
Now let's discuss in detail the disadvantages that will be important when comparing Nevada LLC vs Delaware LLC, starting with Nevada:
LLC registration in the state is more expensive than in most states. If you Google "LLC registration fee in Nevada." you will see a fee of $75 on the Nevada Secretary of State's website and on many reference resources. That's really the fee for registering an LLC. However, in reality, you will have to pay other fees along with that one as well. Namely, to register an initial list of managers and managing members ($150) and a state business license ($200). As a result, creating an LLC will cost you $425;
If the litigation is between companies that operate in different states, confidentiality rules may be violated. In cases where the LLC is incorporated in Nevada but actually does business in another state, a court in Nevada may take into account the laws of the states with which the litigation involves. This will include privacy issues. So while Nevada protects your venture's privacy better than many other states, no one will guarantee it to you in court disputes;
Large companies (with revenues of $4 million or more) pay income tax. As of 2015, Nevada companies that have income over $4 million are subject to income tax. In addition, industry taxes, sales taxes, and a modified business tax must be paid in certain cases;
Company managers are not subject to confidentiality rules. In Nevada, the owners and shareholders of companies maintain confidentiality. Managers and managing members are not subject to this rule, though. You are required to file a list of such members and managers annually in a report to the Secretary of State. The list will then be published on the state's website in the public domain.
Delaware LLC Formation: Pros and Cons
When comparing Nevada vs Delaware corporation, Delaware wins by virtue of being home to nearly one million for-profit organizations, including more than half of the Fortune 500 companies.
The following key aspects underlie such popularity:
General Corporation Law. It provides guidance on limiting the liability of officers and managers, providing an exemption from large insurance costs. It also has provisions that make it easier for companies to operate in Delaware, such as making it easy to change the structure;
The Delaware Court of Chancery was founded in 1792. During that time, it has developed written corporate law that provides for the simple administration of a business legally. Only corporate disputes are heard in this court; there are no civil or criminal cases, allowing business disputes to be regulated more quickly and reliably;
Division of Corporations is administered by the Nevada Secretary of State but is considered a separate business. It provides all corporations and limited liability companies registered with the state with convenient online access to various forms as well as payment services. Delaware registered agents can examine and print company documents, file documents and reports online, as well as obtain the necessary certificates. The office is open until 12 a.m., so documents are processed as quickly as possible.
Delaware is popular among private equity investors (venture capitalists) and angel investors.
You will have to pay a yearly LLC tax of $300.
You are not required to publish your name. In your LLC certificate, you can only list the name of your company and your registered agent’s name and address. Plus, no business license is required for LLCs who don't do business in Delaware.
Dual registration and possible legal problems. If you run a business in two states and form an LLC in Delaware, you will need to register your LLC as a “foreign” LLC in your home state to avoid legal troubles. Thus, you will need to pay twice if you don’t live and run your business in Delaware.
You can form “Series LLCs” in Delaware, which is the first state to enact legislation authorizing the creation of series LLCs.
Tax benefits rarely benefit small and medium-sized businesses. You will have to pay your taxes in the state where you run your business and earn money, not where you register. That said, if you make your money in your home state, you have to follow the rules of the state and pay those taxes.
No state income tax or gross receipt taxes for LLCs who don't do business in Delaware.
You will need to register your LLC as a “foreign” LLC in your home state if you have already formed it in Delaware.
The efficient and knowledgeable Delaware Court of Chancery is a non-jury trial court that serves as Delaware's court of original and exclusive equity jurisdiction. No publicly binding precedents.
Quick registration and business-friendly laws. You can file in under an hour.
These are the aspects that will help you decide if Delaware is really the best state for your LLC.
Delaware LLC Advantages
When comparing Nevada LLC vs Delaware LLC, it's worth noting the advantages of Delaware:
Business-friendly laws. Most of the benefits of the state are for corporations. However, if you visit the Secretary of State's official website, you can expect a convenient service, fast filing and processing, and the easiest reporting, which is an advantage for an LLC;
There's also an elaborate Limited Liability Company Act, which is constantly being updated and finalized by leading corporate lawyers. The act is often studied in business schools and is also used in other states as a basis for similar legislation;
The Delaware Court of Chancery. The corporate court only has judges (no juries), who specialize in corporate law, and deals exclusively with business disputes. The state law is thoughtful and the experience of the court is impressive. That's why any business disputes are resolved quickly and objectively in Delaware. This means that in case of any possible lawsuit, you won't have to spend a fortune on legal defense;
LLC protection. State law protects LLC owners and members in the event of potential business problems. The "corporate veil" works reliably in Delaware, and therefore, your members’ personal assets are firmly protected;
Tax benefits. If you're not doing business in Delaware, you can pay no income or sales tax. Also, there's no tax on intangible income here, which refers to profits from any intellectual property (books, movie rights, etc.);
You are not required to list your name and address. Many states require the names of company owners to be published on the publicly available Secretary of State's website. But nobody really likes the lack of privacy and the resulting decrease in personal security. In Delaware, you don't have to publish your name. All you have to do is indicate your registered agent's name and address in your LLC certificate;
You can form "Series LLCs." Delaware is actually the very first state that accepted "Series LLCs," where one parent company operates other subsidiary companies underneath it. Each series may consist of different members and have different liabilities. However, such a business structure is yet to be legally tested, and most other states don’t accept it yet, excluding Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, and Utah;
You can file quickly. Delaware is a state where company registration is not just fast, but almost instantaneous. Processing time is under 1 hour.
Delaware LLC Disadvantages
Now let's talk about the disadvantages of registering an LLC in Delaware so that our comparison of Delaware LLC vs Nevada LLC is as objective as possible:
You have to pay annual taxes with the LLC. The annual fee when you file your report is practiced in many states. In Delaware, it's a flat rate of $300. This amount is higher than average, so compare it to the annual fees in your home state;
Double registration (if you don't live and do your business in Delaware). This disadvantage is equally important for Delaware or Nevada LLC if you only plan to form an LLC in those states but will actually operate in another state. We already wrote about Nevada above. In Delaware, you won't have to pay any taxes if you don't conduct your business in the state. However, you will have to register as a foreign LLC in your home state, which incurs additional costs;
The Series LLCs are not yet accepted in most states. Such a business structure is relatively new and, therefore, has to undergo legal testing. That's why you may encounter a situation where a court in another state will not consider the division of assets and liabilities, which can lead to serious legal problems;
Tax advantages rarely benefit small and medium-sized businesses. Most state tax benefits are geared towards large corporations. You will have to pay taxes where you actually do your business, not where you register an LLC. And that's why all the tax advantages are only beneficial if that's where you plan to operate your business.
Nevada LLC vs Delaware LLC: Taxes and Fees
When choosing between a Nevada LLC and Delaware LLC, you need to understand what benefits are really important to you. For example, in Nevada, the registration fee of $425 is much higher than the one of $90 in Delaware. Plus, the processing time will also be longer (in Delaware, your application will be processed within an hour).
Also, Delaware accepts "series LLCs" and has a strong corporate court. Nevada, on the other hand, provides a higher level of privacy and a "corporate veil," which protects the assets of LLC members. You will have to decide what's more important to you, and whether it's worth registering in any of these states if they won't be home to your business.
Yes. Required if the company conducts business in the state
Yes. Required if the company conducts business in the state
Registered office address and the name(s) of LLC owner(s) in public documents
Not required. Under Delaware law, members can form an LLC without having to place their name on any public documents
Partly. However, you will need to submit a list of managers/members to the Secretary of State.
Confidentiality of managers and managing members
Yes. No information about members or managers of the LLC is required to be listed on the Certificate of Formation.
$350 ($150 for the Annual List and $200 for the business license registration)
Requirement to file an Annual Report
When choosing between Nevada vs Delaware incorporation, you need to consider those aspects that are most important to your business. Experienced business owners understand the needs of a new company. For novice business owners, we recommend consulting with an experienced attorney and an accountant.
Remember that no matter if you choose to form a Nevada LLC or Delaware LLC, it only makes sense if you plan to incorporate in one state and operate in another. Make sure you consider the laws of the state where you will be running your LLC and the costs associated with your business activities. If you want to operate in Nevada or Delaware, the easiest and most convenient way is to register in the state where you actually plan to conduct your business.