by Julianne Mercer, Negosentro.com |
As an Australian company looking to incorporate overseas in the U.S., you have 50 states to choose from in theory. But realistically, you should narrow your choice to one of these three: Delaware, Nevada or Wyoming.
Why Incorporation Is Recommended Over Sole Proprietorship
Operating your business without formally incorporating it exposes you to personal liability. According to NRMA Insurance, failing to incorporate a business means that a disgruntled client can sue you personally, putting your personal finances at risk and paving the way for high insurance premiums.
Forming a Limited Liability Company (LLC) or a corporation protects you from damages or debt incurred by the company.
In short, incorporation transforms your business into an entity separate from your personal endeavors. Although you might work solo at the moment, incorporation becomes a greater necessity if you decide to hire employees. Incorporation provides greater protection to you and anyone who works for you.
Advantages of Incorporating in Delaware
In the U.S., the state of incorporation determines where any lawsuits will be tried. Each state has different rules and regulations that apply to corporations.
Delaware is particularly popular as a state of incorporation because of the way its judiciary system is set up, and because it provides greater tax benefits compared to other states. Unlike other states, there is also no need to open a bank account or hold meetings in the state in order to incorporate there. This makes it possible for businesses to reap the tax and legal benefits associated with Delaware corporations while being operated remotely.
In fact, Delaware offers so many benefits to corporations that over half of all Fortune 500 companies are incorporated there.
Here are some of the key reasons why all kinds of business owners have chosen to incorporate in Delaware:
- Corporate lawsuits are handled quickly. Delaware’s Court of Chancery deals only with corporate law and has no juries, only judges. This means that it runs like a well-oiled machine. Should your company ever be sued, it’s likely that it will come to a conclusion fairly quickly compared to other states.
- Delaware’s General Corporation Law favors corporations. It sets a precedent for corporations to not be heavily regulated, which means there is less red tape to wade through when you need to change the way your business is structured. It even allows one person to set up a corporation within the state—anonymously, no less.
- Delaware filing fees are comparatively low. It costs a minimum of $90 to form an LLC in Delaware. By contrast, the LLC filing fee in Nevada, the second-most popular state for incorporating a business, is at least $425.
- Privacy for stockholders. The list of stockholders is not provided to the state, and an unlimited amount of stock can be traded. There is also no corporate tax on shares.
- Operating outside the state is easy. Meetings are not required to be held in Delaware, nor is there a requirement to have a company bank account in the state. This makes it easy to incorporate in Delaware while operating out of state. For companies that do so, there is also no need for a business license before incorporation, or to pay corporate or personal income tax to the state.
Nevada and Wyoming Have Followed the Delaware Model
Delaware has been an ideal state to incorporate a business for a long time, arguably since the late 1700s. But Nevada and Wyoming have more recently begun to follow the Delaware model in order to attract more companies.
Both states have tried to make it even easier for business owners to incorporate, and have additional rules and regulations (or lack thereof) to achieve that end:
- There is no franchise tax or state corporate income tax in neither Nevada nor Wyoming.
- Wyoming has no minimal annual fees, nor does it require an annual report until the company’s anniversary of incorporation.
- Both Nevada and Wyoming allow nominee shareholders, but only Wyoming does not require share certificates.
- Neither Nevada nor Wyoming collect corporate tax information.
- Employees, directors, officers and agents are indemnified by statute in both Wyoming and Nevada.
None of the above benefits are available in Delaware.
Where Should You Incorporate?
Wyoming appears to have the most advantages of all three states, but Delaware has the longest history of handling corporate lawsuits, so its judges and courts are used to swiftly handling these cases.
Know that if you incorporate in another state, you can usually change at a later date; but you may have to pay incorporation fees again. Wyoming allows for continuance, meaning you can easily transfer your incorporation files to the state.
With that said, it’s wise to seek legal advice before you make any decisions about incorporating overseas.