Delaware vs. Nevada LLC

Some states have more favorable LLC and business laws than others, so in certain circumstances, it may be beneficial to form your LLC in one of those states. Delaware and Nevada, for instance, have attractive LLC laws, making them the preferred choice for many entrepreneurs.

Yet it’s not always beneficial to form your LLC in a state that’s not your home state. Read on to learn all about the benefits of Delaware and Nevada and when these states might not be the right choice.

Delaware

Delaware has several favorable laws for LLCs. Delaware does not tax out-of-state income; if you do business in other states, there will be no Delaware state tax. The fee to form your LLC is only $90, and franchise taxes are low. 

Delaware also has the Chancery Court system, which allows businesses to settle disputes quickly. In addition, Delaware has the highest liability protection for members, reduced fiduciary duties, and the most favorable business laws in the US.

Nevada

Nevada is a state that offers advantages for LLCs. There is no state income tax for LLCs, corporate or franchise taxes, or personal state income tax. Nevada LLC filing fees are higher, at $425, and they have annual filing fees, but the tax and other benefits tend to outweigh this. 

Nevada also has strong liability and privacy protection, no operating agreement or annual meeting requirements, and very favorable business laws.

Comparison of Delaware and Nevada

Here is a comparison of the highlights for both states.

Filing fees:

• Delaware – $90
• Nevada – $425

State personal income tax:

• Delaware – Yes
• Nevada– No

State corporate income tax:

• Delaware – No
• Nevada – No

Franchise tax:

• Delaware – Yes
• Nevada – No

Annual fee/tax:

• Delaware – $300 minimum
• Nevada – $350 

But Is One of Those States Best for Your LLC?

Unless you’re planning to relocate to one of these states, forming your LLC in one of these states may not be advantageous, mainly because of the foreign LLC rule. A foreign LLC is an LLC doing business in a state other than the one originally registered. 

States have different definitions for doing business in the state; review the secretary of state’s guidelines. Generally, you’re considered to be doing business in the state if:

• You have a physical presence of any kind in that state, including owning property in your business name
• You have employees in that state
• You regularly meet with clients, managers, investors, or business partners in that state.
• You’re licensed to do business in that state.

Remember that if you do business in your home state but register your LLC in another state, you’ll also need to register as a foreign LLC in your home state. This means you’ll have to do twice the paperwork and abide by all regulations and tax laws in both states.

If you form an LLC in Delaware, for instance, and do business in Florida, you’ll have to register as a foreign LLC in Florida and abide by both states’ laws and tax regulations.  

Considering all this, the wisest option is to form your LLC in your home state.