That are the pros and cons of creating your corporation in the state where you're located vs a different state like Nevada or Delaware? Which would you recommend?
I'm no lawyer and I certainly don't live in Nevada but here's my personal opinion: register the company in the state in which you live. I'm assuming you don't live in Nevada or Delaware currently.
Overall looking back at what I just wrote you can obviously see I'm not a big fan. I think it introduces unneeded complexity and potential future issues that may bite you -- all at a time when you should be focused on what counts: building your business and its value, not to mention making customers raving fans. The last thing you want is unnecessary distractions.
Of course if you move to Nevada or Delaware, well, that's a different story. Keep in mind that my experience is with running an NC based LLC (limited liability corporation) and coming fromm the background of raising a significant amount of capital from angel investors (not VC).
I spoke to a lawyer that works with startups about this during a class and here is a summary:
- If you plan to raise funds from investors, they do prefer DE-based corporations to many other states due to legal advantages. Not all states are equally unfavorable, so do consult a lawyer who takes care of funding paperwork. I was told NY is not liked by investors.
- If you know you are not raising funds anytime soon, but don't want to close that door completely, there are ways to move your corporation later so it's not set in stone (e.g. open a new corp and acquire the old one)
- If you plan to remain small and not have employees anytime soon, incorporating locally will simplify legal/accounting for you. Everything Chris said in his answer applies.
Whatever you do, make sure to file for S-corp status when you form a corporation - you have 2.5 months from formation date to do this. Great tax benefits with S-corp. If you are considering LLC route, it's hard to change from LLC to a corporation I believe (consult a lawyer). Also, research and compare tax implications for LLC and S-corp.
TLDR: Only investors care greatly about incorporation states and they do prefer DE, but if funding isn't an option being considered keeping it local simplifies many things. Of course always consult a lawyer or accountant :-)