Delaware vs. Nevada LLC

If you’re starting a business, you may have heard that Nevada and Delaware are advantageous when it comes to forming a limited liability company (LLCs). Both states do offer advantages, but it’s a good idea to take a closer look before you decide if either is right for you. 

An LLC is a business entity that offers liability protection for owners, as well as pass-through taxation, much like a sole proprietorship.

Delaware vs. Nevada LLC Comparison

Delaware is considered a favorable state to form an LLC. Delaware does not tax out-of-state income, so if you do business in other states, there will be no Delaware state tax. There are also no fees to register your LLC and franchise taxes are low. Also, Delaware has the Chancery Court system, which allows businesses to settle disputes quickly. Finally, Delaware offers the greatest liability protection for members, reduced fiduciary duties, and the most pro-business laws in the US.

Nevada also offers many advantages for LLCs. There is no state income tax for LLCs, no corporate or franchise taxes, and no personal state income tax. Nevada LLC filing fees are a bit higher, at $425, and there are annual filing fees as well, but the tax and other benefits outweigh this. Nevada also has strong liability and privacy protection, no operating agreement or annual meeting requirements, and very favorable business laws.

The key differences are as follows:

• Nevada requires you to have a business license before you form your LLC; Delaware does not
• Delaware requires a franchise tax; Nevada does not 
• Delaware has a longer history of case law with favorable rights for businesses than Nevada, making it easier for businesses to prevail in legal disputes
• Forming an LLC in Delaware costs $90; in Nevada the fee is $425

Delaware is the least expensive of the two when it comes to LLCs, and also has the better business environment and liability protection. 

Should You Form Your LLC in a State Other Than Your Home State?

If you’re thinking of forming an LLC in Nevada or Delaware and neither is your home state, you may only be doubling your paperwork and filing fees. This is because you will likely still need to register as a foreign LLC in your home state and be subject to its laws and taxes as well as those of the state in which you form your LLC, whether it’s Delaware or Nevada.

This is true even if you merely base your business in your home state, but don’t do any sales there. Your business headquarters must be in the state in which you live, whether you work from your home or not. Most state laws dictate that you must physically move to the state in which you form your LLC in order to avoid registering as a foreign LLC in your original home state.

A foreign LLC is simply an LLC doing business in a state other than the one in which it’s registered. For example, if your LLC is registered in Delaware, but you also do business in Georgia, you’ll need to register a foreign LLC in Georgia.

If you have an LLC in your home state but do business in other states, you need to register as a foreign LLC in all of the states in which you do business. Each state has different rules defining what doing business in their state means. Check with the secretary of state in any states where you may be doing business to see if you qualify. Generally, you’re doing business in another state if you:

• Have a physical presence of any kind in that state
• Have employees in that state
• Regularly meet with clients, managers, or investors in that state
• Are licensed to do business in that state

You also may be considered a foreign business if your business has a bank account or property in that state. However, if you’re an online business in one state and happen to make a lot of sales in other states, you’re probably not considered a foreign business and thus not required to register a foreign LLC.

In Closing

If Nevada or Delaware are not your home state, it’s probably not in your best interests to form your LLC in either of those states, since you’ll still be subject to the laws, filing requirements, and taxes of your home state. It’s recommended that you seek the advice of an attorney who is familiar with the laws of both states to see if choosing either Nevada or Delaware is right for you and your business.