The question of where to form a Corporation or Limited Liability Company, like everything else in law and business, depends on your particular circumstances. For most small and medium size San Diego businesses, incorporating in California makes the most sense. Incorporating in another state requires additional resources in time, paperwork and expense, and access to court and government services is geographically inconvenient. In addition, there’s the possible inconvenience of having to prosecute or defend lawsuits in a foreign state. There is a common misconception that forming a Nevada Corporation is worth the additional cost and inconvenience because businesses can avoid California’s higher tax rates. However, companies doing business in California, no matter where incorporated, are required to register in California as a foreign corporation and are required to pay taxes on their corporate profits. Unless you plan on moving your business to Nevada, there are no real tax advantages for companies that do business solely or primarily in San Diego.
The question becomes more complex if your company is doing business nationally or in multiple states. Every state in which a business operates will tax at least some portion of that business’ profits based on a standard apportionment formula used to determine each state’s share of the business profit it taxes. Your accountant can help you better analyze your tax liabilities in these circumstances. There are additional legal considerations that tend to favor incorporation in Delaware and Nevada that typically benefit larger publicly held corporations. Delaware has one of the most advanced and flexible corporation statutes in the country. Delaware courts have a great deal of experience handling business disputes, and large corporations count on the courts’ consistency and experience. Consult with a San Diego Business Lawyer if you are uncertain about the effect incorporation in Delaware or Nevada will have on your business.