To clarify:
1) Delaware is chosen for corporations since VCs believe that the Delaware courts are particularly well versed in corporate law. The reason to incorporate in Delaware hence is only if you are looking for investors or going for an IPO.
2) If you are going for an incorporation outside your place of residence you might have to pay taxes twice: once at the place of incorporation and second at the place of your domicile. California for example wants you to register as a foreign corporation if you do business in California.
3) The difference between LLC and corporation: on a technical (read mostly irrelevant) note: LLCs are inventions on the state level, unlike corporations which are tax regulated on the federal level.
In regards to taxation there is NO DIFFERENCE between an LLC and an S-corporation. An S corporation is a normal (that is C-type corporation) that has filed a paper with the IRS that it wants to be an S- type corporation. Both an LLC and a S corporation do not pay taxes themselves, but pass the income/expenses/gain/loss through to their members or shareholders.
4) If you setup a C-corporation, which is the type of legal entity under which all the publicly traded copmanies operate, you pay taxes twice if you pay dividends. Take McDonalds as an example: McDo pays taxes on its profits and when you as the shareholder receive dividends you have to pay taxes again.
However, you may reduce your profits by paying yourself as a contractor (1099) or an employee of the corp..
5) If you are a sole proprietor you have personal liability. Someone sues you (because you are a black hat), you have to pay with all your personal assets. If you have a corporation, you just let the corporation go bankrupt and start a new one.
If you are serious about your business, you should incorporate.
6) Some courts do not fully accept LLCs, which means courts are sometimes willing to pierce the corporate veil for single member LLCs and allow creditors to attach your personal assets. Hence, incorporate as a corporation and give two percent of your shares to your parents, wife, etc. so you no longer are a single member entity.
7) From a post above it was interesting to learn that in Nevada you do not have to show who the owner/shareholder of the corp. is. However, don't mess with the IRS. Declare your taxes ! Cayman islands or other tax havens only make sense if you have income from around the world and only want to pay taxes in the US for your US portion. If you use tax havens for anything else, you risk your existence once the IRS catches up with you and the IRS is getting better internationally.
PM me if you have more questions.
