I get this question all the time. As a general rule, you will need to organize your corporation or other limited liability entity in all states where you are “doing business”, as defined by state law. Having said that, “doing business” can be a very grey area under state law. Also, your entity can be liable for state income or sales taxes without being organized in such state, again depending upon state law. Expert tax and legal advice is recommended in these areas.
Therefore, organizing your entity in a state other than where it is “doing business” for tax purposes may not make sense in light of the above, and this will significantly multiply your administrative effort and costs (e.g. more accounting, tax returns, annual statements, and the like).
Organizing your entity in a state other than where it is “doing business” may have sufficient advantages for larger businesses that have large revenues to balance out the additional effort and cost. Advantages of organizing in Delaware, Nevada, and now Wyoming, for example, include (1) greater protection for directors and officers versus shareholders from personal liability for acts committed on behalf of the entity, (2) more, favorable, and time-tested corporate laws, (3) higher degrees of privacy for shareholders, (4) in the case of Nevada, no sharing of information with the IRS, and (5) in the case of Delaware, high prestige, as more than 60% of the Fortune 500 companies are incorporated there.
Other than for the foregoing potential superseding reasons, it is not usually wise for smaller businesses to organize in a state, such as Nevada, unless it is otherwise “doing business” in Nevada.
Important Proviso: The above material does not constitute legal advice and should not be relied on. It does not create an attorney-client relationship. Each locality has differing laws. A legal matter cannot be satisfactorily resolved without a comprehensive review and analysis of all the unique facts and laws at issue by an able attorney. Your matter may result in a loss of rights if you do not timely retain such an attorney.
Contact: If you would like to discuss this matter further in a more private forum, please feel free to contact me directly at the email address provided through my firm’s website located at http://www.BealBusinessLaw.com.