It’s not hard to find an article or a business registration company who will advise you to register your business in another state, mainly Deleware or Nevada. They will tell you that there a variety of reason to do this, most of which involve paying less taxes but the important questions should be asked: Is this really a good idea and is it even legal?
First, it is true that many if not most large corporations are registered in Nevada and Deleware and it is because there are specfic reasons for this. Unless your company has thousands of shareholders, there is very little benefit to you because you don’t have to meet the complex securities laws that are found in other states.
If you’re not concerned about securities laws, you might have heard that it costs less money to register in these states but again, the facts don’t seem to support that claim. While the actual cost of registration may be slightly less, there is more paperwork to file if you’re registering a company in a state where you don’t reside and since many states will still require you to register your business in the state where you live, you may end up registering twice and paying much more than you would have if you registered in your home state.
Maybe you heard that you could avoid paying state income taxes in the state where you reside by registering in a state where there is no state income tax. This is probably not true. Even if your business doesn’t have to pay corporate taxes in your state, any money that you receive from your business will still be subject ot personal income taxes. Business designations like LLC may allow business gains to pass through your business so you would have only paid personal income tax anyway.
There is a little known pitfall that most business registration services who advocate registering out of state don’t tell you. One of the most important parts of registering your business is to seperate your business from your personal finances. This gives your family’s finances protection should you run in to credit or legal troubles. If you register out of state, you give up these legal rights. This fact alone is reason to always register in the state where you live.
The bottom line is this: No need to try to avoid a few dollars in extra fees. You should always register your business in the state where you reside. Your small business doesn’t have the complex financial structure that larger fortune 500 companies have and you don’t have a team of attorneys to protect you if you run in to legal troubles as a result.
The best way is almost always the simplest way.