The
laws governing corporations vary from state-to-state.
As a result, a common question prior to incorporation
is "Where should I incorporate?" The simple
answer for the great majority of companies is
that you should incorporate in the state in
which your corporation intends to conduct the
majority of its business. If you intend to do
business in only one state, you should incorporate
in that state.
If
you feel you might be interested in incorporating
in a state other than the one in which your
corporation will conduct the majority of its
business, you will want to consider the following
issues:
- What
is the tax rate for the state(s) you are
consideration for incorporation?
- What
are the comparative costs of incorporation
in a particular state versus the costs of
registering to do business as a foreign
corporation in that state?
- What
are the corporate laws of the state with
regard to the rights and responsibilities
of corporate shareholders, officer, and
directors?
- What
are the corporate laws of the state regarding
the rights of creditors?
When
corporation laws were first being enacted by
the states, several states purposely enacted
laws to attract businesses to incorporate in
their states even though the corporations would
do business in other states. The first states
in this group were New Jersey, Delaware, Maine,
Arizona, and a few others. Today, Delaware is
the clear winner. Close to one-half of all corporations
listed on the New York Stock Exchange are incorporated
in Delaware even though most of those corporations
have their principal places of business elsewhere.
If
you incorporate in one state and end up conducting
most of your business in a different state,
you will have to qualify to do business in that
other state, which will involve more fees and
costs, more filing requirements, and more paperwork.
If your business actually conducts business
in more than one state, or if it is a large,
publicly held corporation, it can be worth the
additional cost and time to incorporate in one
state but operate in another state or states.
A
corporation doing business in a state other
than its state of incorporation is considered
a foreign corporation.
Delaware
According
to the Delaware Secretary of State, there are
several reasons that so many companies choose
to incorporate in Delaware:
- The
Delaware General Corporation Law is one
of the most advanced and flexible corporation
statutes in the nation;
- Delaware
courts and, the Court of Chancery in particular,
have over 200 years of legal precedent as
makers of corporation law;
- The
state legislature takes its role seriously
in keeping the corporation statute and other
business laws current; and
- The
office of the Secretary of State operates
like a business rather than a government
bureaucracy with modern systems and a customer-oriented
staff.
The
Delaware Court of Chancery has an excellent
reputation and is predominantly a business law
court. Its judges have a great deal of experience
with business disputes. Other states have created
similar specialty courts, but none have achieved
quite the reputation of the Delaware Court of
Chancery.
Highlights
of benefits to incorporating in Delaware include:
- Low
cost incorporation fees;
- No
state corporation income tax for Delaware
corporations not operating in Delaware;
- No
name or address disclosure requirement for
the initial board of directors;
- One
person may hold all corporate offices;
- The
corporation must have a registered agent
in Delaware, but not a business office;
and
- Claims
relating to the corporation will be heard
by the Delaware Court of Chancery.
It
makes sense for a large, publicly held corporation
to incorporate in Delaware. It also may make
sense to incorporate in Delaware if your corporation
will conduct business in more than one state.
It does not, however, generally make sense for
a small, privately held corporation that will
only conduct business in another state to incorporate
in Delaware.
If
you are a California business only doing business
in California, there will be extra costs and
paperwork to be a Delaware corporation, and
you should most likely choose to be a California
corporation. But again, if you are only doing
business in one state such as California, it
will generally make more sense to be a California
corporation.
Nevada
Nevada
is another state attempting to attract businesses
to incorporate there by enacting corporate-friendly
laws. Some of the benefits of incorporating
in Nevada include:
- Anonymity
for stockholders by allowing stockholders
to avoid having their names becoming part
of the public record;
- Stockholders,
directors, and officers may be nonresidents
of Nevada;
- No
state annual franchise tax;
- No
state corporate tax on profits; and
- One
person may hold all corporate officers.
But
again, if you are only doing business in one
state such as California, it will generally
make more sense to be a California corporation.
Secretary
of State
The
Secretary of State is the official who is responsible
for handling each state's business filings.
The office of the Secretary of State for each
state is where you file the documents and paperwork,
and pay fees to create, manage, and dissolve
a corporation. The best way to obtain the most
up-to-date filing and fee information regarding
your corporation is to contact your state's
Secretary of State, first by visiting your state's
Secretary of State website. All states provide
access to corporate filing information in this
manner. |