Incorporating in Another State

Clients often ask if there is some benefit to incorporating in another, more business friendly state such as Nevada or Delaware.  I am licensed only in California and Washington so I cannot comment on the laws in those other states; however, there are sometimes reasons to consider incorporating somewhere else if the extra cost and hassle provides some business benefit.

If a business is going to operate in Washington, it still needs to be qualified to operate here even if it is incorporated somewhere else.  This is called “foreign entity registration” and it costs the same, and includes many of the same extra work, as incorporating in Washington in the first place.  So there, must be some measurable and achievable benefit to the foreign corporation for it to make sense.

Some clients elect a Delaware incorporation because they are expecting to receive venture capital funding and/or plan to go public early in their corporate lives.  Almost all public companies are incorporated in Delaware largely because the laws there are favorable to public companies.  Some clients like Nevada because there are some favorable privacy protections there; however, again, if the business is going to operate in Washington (or any other state for that matter) it must comply with the local jurisdiction laws just like corporations incorporated there so the privacy benefits may or may not be achievable.

The bottom line is that there are sometimes net benefits to incorporating in another jurisdiction but it does increase the cost of incorporating and managing a corporation and those costs must be weighed against the strategic or economic benefit.