Delaware LLC, one person, internet-only business; Do I need to register as a foreign corporation?

You will be doing business in VA, so that is where you should form your LLC. If you form it in DE, you will need to register in VA because you will be transacting business there (yes, running a business from home on a laptop is transacting business).

This issue comes up frequently. Please see Why (not) incorporate in Delaware? and Why (not) form an LLC in Nevada? (both written from a CA perspective, but equally applicable to VA).

Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.

From what I've gathered on this issue, it really comes down to how your home state defines "conducts business on behalf of". I've heard a lot of people say that ALL states consider being a member manager or an officer of the company as "conducting business on behalf". But I think that's a lazy way to look at it and from what I've read, goes against the intent of the Due Process clause that relates to "minimal connection". It might constitute conducting business, but it might not. Similarly, saying "working from your home on your laptop is conducting business" is too broad as well. What if I have a turn-key internet based solution that I license from another company (which I also own) and all I do on my laptop is improve this turn-key solution as an owner of that other company? Granted, most people that say, "work from my home on my laptop" mean exactly that and ARE conducting business on behalf of, but that's not the ONLY possibility.

In my opinion, it is possible to have a single member LLC or single stockholder corporation that resides in a state other than that single member/stockholder's home state and still NOT trigger substantial nexus in the member/stockholder's home state, depending on the state.

For example, if I formed a Nevada corp, rented offices in Nevada, located my servers there, and had a software platform that handled the entire company's business, just what "business" is left to conduct in my home state? I just can't see where having to file a few Nevada business forms at most constitutes "conducting business" in my home state enough to trigger substantial nexus in my home state. Granted there are a lot of home-based Internet businesses where you really would have to conduct most of the companies business in your home state. I'm simply stating that that's not the ONLY possible scenario.

My thoughts... "everyone says to incorporate in Delaware" is not a really good reason to incorporate in Delaware. There really isn't any compelling reason to domesticate your entity in Delaware that I can derive from your question unless you left out that you're going public in the next couple of years ;-)

Also... whether or not you could take advantage a state tax free jurisdiction would depend on whether or not you're planning on taking any money out of the entity. If you aren't taking money out of it, then I would argue that you aren't "conducting business" in your home state (however it would be easy to find people to make the opposite argument even though I feel they would be wrong LOL) If you have a another job that is supporting you and this is a side project, then maybe the idea would be to leave all of the money in the company. Not the easiest thing to do all the time I understand, but just a thought...

Another consideration is how onerous the taxes are in your home state. Personally, I wouldn't mind paying a little bit of tax if it meant that I didn't have to ever deal with the horrifically rude people at the Delaware Secretary of State. They never fail to let you know what a favor they are doing you by talking to you and how lucky you are that they even picked up the phone. Apparently they buy their own hype.

There is quite a bit of case law behind the entire issue of internet taxation. Generally, in order to be taxed in a particular state, a business must have a “substantial nexus” to the state. This depends on the existence of 1) Headquarters, 2) Employees, 3) Bank Accounts, 4) Servers, and/or 5) Return stores. If the company has one or any factor of these things, it is likely to have some “nexus” to the state. No single factor is determinative, and each case must be determined on a case-by-case basis.

As you mentioned, VA explicitly lists how having a bank account in state doesn't count, so rule out #3. For others who are interested in this topic, here's the link to the VA code: http://law.justia.com/virginia/codes/toc1301000/13.1-757.html

Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.

The fact that you are

1. the principal executive of the LLC and
2. you reside in VA

will most likely give your LLC nexus in VA, requiring it to file as a foreign corporation.

My understanding from reading your question is that you will have to file as a foreign corporation in your home state. To be on the safe side you should speak to a small business attorney in your home state. He or she can tell you what "transact business" means to the state.

However, before you make the decision to incorporate in Delaware versus your home state, there is something else you should consider, if you haven't already:

Tax Structure: What type of tax structure will you choose for your LLC? If you go with pass-through taxation (either because the LLC is disregarded by the IRS, or because you bring in another member and are taxed as a partnership), your profits will pass through to you as the owner of the company. Meaning that when you file your personal income tax, you will need to include the profits (or losses) from your business anyway. If you go with Corporate taxation, your LLC is treated as a separate entity and it will pay taxes in whatever state it is registered in. And you as the owner pay your personal income taxes in whatever state you are living in.

In my opinion, registering a small startup like yours in a state other than your home state isn't worth the effort. Your time is better spent working on your product or service. But I don't have all the facts. Again, you should consult a small business attorney.

Also take a look at this other answer, it may help you out.