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This will be a small to begin with, I just finished school and owe too much in student loans to quit my day job. An LLC is attractive for the low record keepi

by mcu 19y ago

This will be a small to begin with, I just finished school and owe too much in student loans to quit my day job. An LLC is attractive for the low record keeping and tax paperwork requirements. One concern is that I see no legal framework for vesting built into LLCs, I'd rather not roll my own. Has anyone looked into filing an operating agreement in Nevada instead of Delaware? Among other benefits, a cursory glance at the facts seemed to indicate that the tax burden would be lower in Nevada. Am I missing something obvious?

rms 19y ago
It's cheaper to have a corporation in Nevada. Delaware is popular because there is more corporate law precedent there.
zach 19y ago
An LLC has shares just like any other corporation. You just keep giving shares to those who stay on and don't give them to those who don't. Stock options are another matter. The primary point of incorporating in Delaware is for the outstanding legal and administrative structures they have for corporations. Not everyone is incorporated in Delaware -- Apple has always been a California corporation. But better to do it now rather than have to later. In any state, the tax burden for a foreign corporation (one incorporated in another state) is going to be about the same as one incorporated in that state. That's because states have complete control over taxing revenue earned in their state, regardless of where entities are incorporated. Nevada is business friendly, but since the state has no income tax, it also has a stigma of being quite popular with tax cheats. So it may increase the chance of an audit.
- rms 19y ago
  In PA, an LLC can have shares but only if you write the legal framework yourself. By default, a PA LLC has membership interests, which are defined as a certain percentage of the company.
  - zach 19y ago
    Good to know, thanks. I guess in some places LLCs are still more like partnerships than corporations.
dk 19y ago
As per zach, the state where you're operating is going to impose income/franchise taxes regardless. I've heard of strategies that involve multiple entities. So for instance you might form a Nevada entity that owns the IP and licenses it to the operating entity. The licensing/royalty fees serve to shift a fraction of your income out of state where it can't be taxed. That's all I know. For us it'd be way too much hassle just to avoid (some of) the ~4% franchise tax.

by mcu 19y ago

rms 19y ago

It's cheaper to have a corporation in Nevada. Delaware is popular because there is more corporate law precedent there.

zach 19y ago

An LLC has shares just like any other corporation. You just keep giving shares to those who stay on and don't give them to those who don't. Stock options are another matter. The primary point of incorporating in Delaware is for the outstanding legal and administrative structures they have for corporations. Not everyone is incorporated in Delaware -- Apple has always been a California corporation. But better to do it now rather than have to later. In any state, the tax burden for a foreign corporation (one incorporated in another state) is going to be about the same as one incorporated in that state. That's because states have complete control over taxing revenue earned in their state, regardless of where entities are incorporated. Nevada is business friendly, but since the state has no income tax, it also has a stigma of being quite popular with tax cheats. So it may increase the chance of an audit.

rms 19y ago
In PA, an LLC can have shares but only if you write the legal framework yourself. By default, a PA LLC has membership interests, which are defined as a certain percentage of the company.
- zach 19y ago
  Good to know, thanks. I guess in some places LLCs are still more like partnerships than corporations.

dk 19y ago

As per zach, the state where you're operating is going to impose income/franchise taxes regardless. I've heard of strategies that involve multiple entities. So for instance you might form a Nevada entity that owns the IP and licenses it to the operating entity. The licensing/royalty fees serve to shift a fraction of your income out of state where it can't be taxed. That's all I know. For us it'd be way too much hassle just to avoid (some of) the ~4% franchise tax.