Response to the Often-Asked Question:  What About Delaware?

“My friend said that her attorney said that the best place to incorporate is Delaware because that’s where all the big corporations are based.” Once again, there is SOME truth in this statement but there is much knowledge to be derived in understanding the differences between Nevada and Delaware corporations.

The fundamental distinction is that while Nevada’s statutes create benefits for private corporations, Delaware’s corporate statutes have principally been designed to benefit shareholders of public corporations.  Many large, public companies that trade on various exchanges across the country incorporated in Delaware because Delaware’s statutes provide the best protection of the rights of shareholders.  In recognition of the foregoing, Delaware’s corporate law with regard to corporate takeovers is the strongest anywhere in the country.  And if you want to “go public” with your corporation some day, Delaware’s onerous disclosure requirements probably won’t bother you.

On the other hand, Nevada’s provisions for establishing and maintaining privacy of ownership and control is unparallelled. In Nevada, ownership of a corporation is not a matter of public record: There is no prohibition against the use of bearer shares, there is no requirement for stock to be issued, nor is there any requirement for an annual meeting of stockholders. In terms of privacy of control, the use of nominee officers and directors has been a common practice for over 75 years. In addition, NRS 78.257 makes it a gross misdemeanor for anyone to even attempt to use a Nevada corporation’s records for purposes contrary to the interests of the owners.

Delaware is NOT “tax-free”.  A Delaware corporation’s taxable income is taxed at the rate of 8.7%. In addition, its franchise tax has a graduated rate depending on capitalization, amounting to a minimum of $30 and a maximum of $130,000.

Nevada’s corporate law easily surpasses Delaware’s in terms of protection of corporate officers and agents.  Delaware has recently adopted a statute that allows a corporation to limit the liability of a director for monetary damages—but officers of Delaware corporations are still not covered. The following acts of officers and directors would be protected under Nevada law, but are exposed to liability under Delaware statutes:

1. Acts or omissions not in good faith;
2. Monetary damages occasioned by acts of officers (directors are now exempt);
3. Breach of a director’s duty of loyalty;
4. Transactions involving undisclosed personal benefit to the officer or director;
5. Acts or omissions that occurred prior to the date that the statute which provides for indemnification of directors was passed and approved.

As a final point on the subject of Nevada versus Delaware, it is noteworthy that Nevada has NO RECIPROCITY WITH THE IRS; Delaware, like all other states, freely shares its data with the IRS.