One of the first decisions a business must make after
deciding to incorporate involves selecting the proper state of
incorporation.
You are not required to incorporate in the state where
your business operates. You can choose from any one of the 50 states or
the District of Columbia.
In making the decision of where to incorporate, three
factors typically are weighed:
-
The location of your physical facilities
-
A cost analysis comparing incorporating in the state
of operation versus qualifying to do business as a "foreign
corporation" in the state under consideration
-
Determining the advantages and disadvantages of each
state's corporate laws
When analyzing these three factors, keep in mind that a
corporation is referred to as a foreign corporation in all states except
for the state where it is incorporated.
If a corporation is transacting business in a state
other than the state where it is incorporated, it must register for a
certificate of authority to transact business in the other state or
possibly lose access to that state's courts and face fines.
The decision of where to incorporate is typically
between the state of operations and Delaware. If the corporation is a
"closely held" corporation that does business primarily within
a single state, local incorporation is typically the best
decision.
Closely held corporations possess the following
traits:
-
A small number of shareholders
-
No ready market for the corporation's stock
-
Substantial participation by the majority
shareholders in the management of the corporation
For corporations doing business in a single state, the
cost of local incorporation will usually be less than incorporating in
another state and qualifying to do business as a foreign corporation in
that state.
A foreign corporation that qualifies to do business in
another state is subject to taxes and annual report fees from both the
state of incorporation and the qualifying state.
Thus, the actual advantage of incorporating in a state
with very low or no corporate income tax is not as great as it appears,
if your business must still qualify to do business in its state of
operations.
This article is provided courtesy of Business Filings Incorporated (www.bizfilings.com).
This information should not be construed as legal advice,
or as a substitute for consulting with an attorney, CPA (or their equivalent
outside the U.S.), or other appropriate small business trusted advisor. Small
Biz Tech Talk strongly recommends that you seek proper professional guidance
before establishing any type of new business entity and simply provides this
information, and a link to Business Filings Incorporated, for your convenience
and as part of a content sharing syndication agreement.
Incorporation Articles from Business Filings Incorporated:
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