The choice of where to incorporate a business can have dramatic effects on the future operations of the corporation. For instance, if a business plans to have their headquarters in one state, but will actually be doing business more in a different state, they need to think very carefully when it comes to selecting the jurisdiction of incorporation.
A business that is incorporated in one state, but conducts business in a different state, is known as a “foreign corporation” in the second state. Foreign corporations may be associated with different license and filing fee requirements.
When considering where to incorporate your business, you should review the following factors and make comparisons of the different areas you are contemplating:
- Taxes: What are the tax rates in your area, and how do they compare to the tax rates in other areas where you’re thinking about incorporating?
- Fees/costs: What are the filing fees for corporations in different regions? If you’ll be conducting business in more than one state, will you be able to calculate the costs associated with interstate commerce?
- Insolvency laws: In the event that your business becomes insolvent, how are creditors treated under the laws where you have incorporated?
- Ease of operation: In most cases, it’s easier to incorporate in your own home state rather than in a different one than where you live. However, the opposite may be true in some instances- sometime’s it’s actually more cost-efficient to incorporate in a different state
Thus, you should go over these factors in detail when deciding where to incorporate. There may be different factors to consider depending on the type of incorporation involved. Also, certain states such as Delaware and Nevada offer different incorporation benefits compared with other states.
A Delaware corporation is one that has incorporated in the state of Delaware in order to take advantage of its corporate laws, which are among the most favorable for corporations in the U.S. It is also an excellent incorporation location for corporations that have various branches throughout the U.S.
Some advantages of filing for incorporation in the state of Delaware include:
- Lower franchise taxes and incorporation fees
- Corporate offices can be held by a single individual
- No need to provide addresses of initial board of directors
- Delaware has a separate “Court of Chancery” specifically for businesses
- Incorporation may be faster and easier than in other states
Also, businesses that are incorporated in Delaware but don’t conduct business there aren’t required to pay Delaware’s state income tax. Likewise, non-Delaware residents who hold stock in a Delaware corporation don’t need to pay the state’s personal income tax. Lastly, Delaware corporations only need to have a registered agent in the state, and don’t need to have any other offices in the state.
Nevada offers similar benefits to corporations as Delaware. These include:
- All offices of the corporation can be held by a single individual
- No state annual franchise tax, no state personal income tax, and no corporate tax for the state on profits
- Shareholders aren’t required to disclose their identities in public corporation records
- Directors, officers, and shareholders, can be non-residents of the state
However, Nevada corporations do need to have a legal address in addition to a registered agent within the state.
Deciding where to incorporate a business can often be very involved and complicated task. You’ll need to research the best possible options for you and your business, and you may need to factor in the various laws of each state. For these reasons, it’s best to work with a qualified business lawyer for assistance with where to incorporate. Your attorney can explain the differences in filing in one area as opposed to another, and can represent you in court if any disputes arise.