Where Should You Incorporate?

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Like many entrepreneurs and small business owners, you probably want to run a successful business while protecting your assets, limiting liability, and avoiding unnecessary tax and legal fees.

To succeed at this, you’ll need to do two things: (1) determine the entity structure for your business (see our article Choosing the Correct Business Entity: The Basics) and, if you decide to incorporate, (2) choose a state of incorporation (for more information see our article How to Incorporate in Delaware and California).

As a new or small business, the state you chose to incorporate in is generally up to you. You can choose to incorporate in your home state or a different state. Both choices have different advantages.

If you’re primarily doing business in your home state, there may not be an advantage to incorporating in another state because you will still have to register your out-of-state (foreign) corporation in your home state and pay the same fees and taxes.

Delaware is the de-facto standard

Over a million business entities are incorporated in Delaware. Delaware law gives businesses flexibility in management and operations, and has a well-developed body of laws, particularly relating to stockholder rights and acquisitions. If you’re considering funding in the future, most investors will expect your business to be incorporated in Delaware.

Other jurisdictions are trying to make themselves more attractive for businesses to incorporate in by, for example, offering tax incentives, low fees and flexible rules.  Despite those efforts, Delaware remains the clear leader. Note that if you are operating your business out of a state that is different from your state of incorporation, you will still likely be responsible for that state’s income tax.

You should seek advice from a certified public accountant on the tax considerations and work with a good lawyer that will set up an entity that is right for your specific business needs.

 

Topics:  Articles of Incorporation, Choice of Entity, Incorporation, Small Business, Startups

Published In: Business Organization Updates, General Business Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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