Travis: Alright. Well, let's change gears here a little bit and let me ask you. I imagine that you probably get a lot of people that live in one state, and are forming an entity in a completely separate state.
Jake: There are definitely some cases where people do that, yes.
Travis: Under what circumstances would you form your entity in a state other than your home state?
Jake: Most people form in another state when they have property or their business is located in that other state. The general rule of thumb for most small business owners is – form it where your business is located. Because your state is going to tax you for the income that you produce in that state.
So if you have a physical location in that state, the best route that most people will take is to form it in that state.
Now, there is some… people like to form it in Nevada, or Wyoming or Delaware, because they've heard that it's the best place for businesses to form. And, that's something that you may want to consider. You know, most people don't really need to do that because they're going to be small and they're going to be taxed in their state. They don't need to pay additional fees and have additional requirements when they form it in another state when they form like Nevada, Delaware or Wyoming.
Travis: So, are the advantages of forming in those other states lower taxes? Better asset protection? What would possibly posses somebody to double up their taxes and their paperwork required?
Jake: Well, I think these three states definitely throw out a lot of information about the fact they're very business friendly. They have lower taxes, Nevada for example says that it doesn't share information with the IRS.
Those are the reasons people are attracted to those states. And I think, in my experience, Delaware has probably the strongest, business friendly laws in the country. And a very specific court that deals with business law and business issues. And that's been around for over 100 years. So that's why a lot of Fortune 500 companies have formed in Delaware.
Travis: That makes sense.
Jake: But for most business owners, I would say that it probably makes sense to stay in the home state where they're located.
Travis: And, of course, they should deifntely consult their own accountant and attorney before making this decision either way.
Jake: Absolutely.
Travis: But what I'm hearing is that under most circumstances, small business is better off forming an entity in the state within which they live.
Jake: That's usually the best course of action for most individuals who are forming a small business. But again, you're right, they should definitely contact their attorney and accountant and say ‘hey – are there any benefits for me forming in Delaware or Nevada or Wyoming? And if their accountant or attorney says there is, then they should definitely consider that.