Best State to file your incorporation

Normally you will incorporate in the State where your business is located or headquartered. You may have a factory, office or store. You may live in that State. Many people will look to other States because they were told certain States are better for the shareholders and rules. Some States will protect the privacy of Officers and Directors than others and some States have no State income tax. There are all good reasons. However if you are doing business in a State, even a State that has high income taxes or doesn't protect your privacy then you will ultimately have to either incorporate in that specific State or register in another State but register in the State where you operate as a foreign corporation. Foreign is not a different country but a different State. If you incorporate in Delaware or Nevada but you operate in California you will be required to operate in California as a foreign corporation. Thus if you are trying to avoid paying a minimum tax like California's current minimum tax to the Franchise Tax Board of $800.00 per year incorporating in a different State will not save you those minimum taxes. A foreign corporation has to pay the minimum tax. If you lease a space, offer your services from a location within a State, want to defend yourself in a lawsuit or pursue a lawsuit in a State where you are doing business then you must be registered in that specific State. The Ste where you originally incorporate is known as domestic. If you file your articles of incorporation in Delaware you will be a Delaware corporation. Any other State you will be a foreign corporation in that particular State. By doing any business in a different State you will more than likely need to register as a foreign corporation in that State and follow the rules in that State as well as where you originally incorporated

Delaware incorporations are famous because they are an original colony and State. Their rules related to incorporation have hundreds of years of history. This means almost every issue you can imagine was litigated and decided. As Courts generally follow prior laws-known as precedents-the Courts rules can be counted on to continue in full force and effect. Essentially if something happens you will know the outcome. 

Delaware has many rules that can protect a minority shareholder. Thus, if the corporation is attempting to take over the corporation and you aren't interested in selling you have additional rules to protect your rights.  This is why many corporations incorporate in Delaware.

At the end of the day though to avoid paying multiple fees and following rules of many States you should incorporate where your business is located. You will be taxed in the State where you are a resident and will be taxed based upon your customers and clients locations as well. Thus going to Florida or Texas to incorporate if your factory is in California or New York will not save you as much as you think yearly. f you actually live in a State with no income tax that's a good place. 

If you plan on selling your business capital gains is another tax that you want to lessen or avoid but you still must be a resident of the State with low capital gains taxes. Everyone pays federal income taxes so this is not considered as an advantage.

Some States allow you to nominate directors, officers to serve.  Many private people incorporate in these States so they do not have to identify themselves on public documents in those States. Of course if you are doing business in another State and are required to register as a foreign corporation in that State you will have to disclose the true directors and officers negating the advantage of nominating  others.

There are a multitude of items you need to know before deciding where to incorporate.


There are no comments yet. Be the first one to leave a comment!