Where should I incorporate my small business?  I hear this question a lot from would be entrepreneurs in Iowa.  The question used to surprise me but after seeing the numerous advertisements for Delaware and Nevada corporations on the Internet I suppose it is a legitimate question.

Delaware has reputation and history on its side.  Delaware’s Division of Corporations boasts that more than a half a million business entities make their legal home in Delaware including more than 50% of all U.S. publicly-traded companies and 60% of the Fortune 500.  Businesses, especially large ones, choose Delaware because of the state’s business laws and respected Court of Chancery.  Corp Law Blog says it is because of Delaware’s predictability. 

Nevada has recently exploded in popularity for many businesses.  This is due to Nevada’s pro-business climate, low-tax mentality and the lack of an information sharing agreement with the IRS.

Delaware or Nevada may offer viable options for some companies but in general most Iowa small businesses are wise to incorporate in Iowa.  First, Iowa has very low fees when it comes to incorporating your business.  It is a $50.00 fee to file Articles of Incorporation for a domestic corporation in the state of Iowa.  Further, it only a $30.00 fee every two years for a biennial report if you file online.  These fees are extremely low compared to other states.

Second, you won’t avoid Iowa taxes by incorporating your Iowa small business in Nevada or Delaware.  The tax and corporation laws of Iowa will require you to register your company and pay fees as a foreign corporation in Iowa and you will be required to pay Iowa state income taxes for any income earned.  (You also do not avoid federal income taxes by incorporating in Nevada despite the lack of an information sharing agreement with the IRS).

And the perceived court advantages in Delaware?  That might be fine for a large business that is actually going to litigate a case in Delaware but it is probably not cost effective for most Iowa small businesses to litigate their cases in Delaware.  Besides unless you have well-written forum selection clause in contracts your Iowa small business will likely end up in Iowa courts anyway.

If you have questions regarding where you should incorporate your Iowa small business you should be sure to contact a business attorney licensed in Iowa.