Why (not) form an LLC in Nevada (or Wyoming)?
Questions about forming a limited liability company (LLC) in Nevada (or, increasingly, Wyoming) come up so frequently – the last time, yesterday – that I feel compelled to write about this topic.
There is something approaching the status of urban legend about the wisdom of forming LLCs in a state that does not have an income tax. The problem is that lack of an income tax will benefit you only to the extent that you do business in in that state!
Let’s say that you live, and intend to do business (in the legal sense – see Doing Business in CA? Be Sure to Register), in California, but you form your LLC in Nevada or Wyoming. Guess what: Because you are doing business in California, you will have to pay income tax in California. Furthermore, you will have to register your LLC in California as a foreign LLC. The result: You will not have escaped paying income tax, and will have to pay the two states’ annual business fees!
The bottom line:
- Form your LLC in Nevada or Wyoming only if that is where you will be doing business.
- If you will be doing business in another state, that is where you probably should form your LLC.
- If you will be doing business in multiple states, work with a knowledgeable tax adviser – multi-state tax issues can be tricky.
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
Dana Shultz is a business-savvy lawyer located in Northern California's San Francisco Bay Area (in the East Bay, near Oakland) who has in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies.
I am marrying an American and moving to Oregon which has the highest income taxes in the States. I have an international company where I consult and do sales and service all over the world including the U.S. (various states).
Where should I register my business?
@Peter
From the purely legal perspective, I recommend forming the business in the state where you will be located (OR).
In your situation, however – as noted in the post’s last bullet – because multi-state (and international) tax considerations are so tricky, you should consult with a qualified tax advisor (in OR).
Hi Dana,
I recently lost a lot of income because of Arkansas’ new internet tax law, mainly Amazon.com refusing to allow affiliate partnerships with Arkansas residents and canceling our accounts.
I do business online solely and have no physical location. Furthermore I have business partners that live in other states.
I was hoping to form a Nevada S Corporation and operate my business in the “cloud” or internet and allow the S corp to pass through the shareholders incomes to their state of residence.
MyCorporation.com has a mail forwarding service and I was hoping to use that address for my corporations for our bank account. Is this possible or even legal?
I need to circumvent this internet tax law and remain an Amazon.com affiliate partner.
Any ideas?
@Jason
I cannot provide a direct answer to your question, because I am not a tax expert and I am not familiar with Arkansas law.
However, when a California-based entrepreneur contacted me recently with a similar idea, I concluded that it would not likely work (assuming the entrepreneur was honest), because Amazon cared about where he resided, which would not change. Please see “Re-incorporation Won’t Save Amazon Affiliate from Termination” at http://dana.sh/ri0nL2.
Hi Dana,
We am considering forming a 3 person business partnership. Our business is online branding, marketing, ecommerce of nutritional supplements. We will not be producing the products, only marketing/promoting them. Each of the 3 partners live/work in a different state (California, Florida and Arizona). All of our business ad collaboration will be conducted online and remotely – each person works out of his home. Like most folks, in the early stages we would like to keep it as simple as possible.
1. should we incorporate ?
2. If so, LLP, LLC, etc ? And how do we decide where to incorporate?
3. If so, and we choose on of our home states, what would be the advantages/disadvantages for the person who’s home state we choose?
I believe that this situation is best addressed from a tax, rather than legal, perspective. The three of you should retain a tax advisor who can take into consideration your personal tax situations, the business’s likely tax obligations, and the three states in question, then recommend the approach that will be most tax-efficient.
1) What about privacy? If I were to start a Nevada LLC, I could use a registered agent and not be personally identified or does signing up to operate as a foreign entity in California require you to reveal more than your registered agent?
2) For all practical purposes, wouldn’t it be more difficult to pursue collecting from a NV entity even if operating in Ca because it is more difficult to pierce the corp veil?
1. (a) A CA LLC can be formed with a third party designated as the agent for service of process, roughly equivalent to a commercial registered agent in NV. (b) A foreign LLC qualified in CA must provide the same information as a domestic LLC in the biennial Statement of Information (Form LLC-12).
2. To the best of my knowledge, superior protection against piercing the corporate (or LLC) veil is an urban legend and a scare tactic. Any competent business person who wants to maintain limited personal liability can learn what to do and what not to do (please see Beware Your Alter Ego).