Once you've decided to incorporate your small business the next
step is deciding which state to incorporate in. A common
misconception is that businesses must incorporate in their state
of operation. You can, in fact, incorporate in any one of the 50
states and the District of Columbia regardless of where your
business currently operates.
It is perfectly acceptable to incorporate in a state other than
your current area of operation, but it is not always a good idea
to do so. If your company chooses to incorporate in a state
outside its area of operation life becomes a little more
complicated. Your business becomes a "foreign corporation" in
any state outside of the state it is incorporated in. If a
corporation is "transacting business" in a state other than
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.
Registering for a certificate of authority, of course, costs
money and is only one step in the process of qualifying to do
business as a "foreign corporation" in another state.
There are advantages to incorporating in different states with
regard to corporate laws and tax structure. Delaware is by far
the most popular state for incorporation. Most of the fortune
500 companies are incorporated in Delaware.
Some of the most attractive features of incorporating in
Delaware include:
1. Lack of corporate income tax for corporations incorporated in
Delaware but not transacting business in the state.
2. Delaware has a separate corporate law system that uses judges
appointed for their knowledge of corporate law as opposed to
juries, whose knowledge of corporate law is limited at best.
3. Shares of stock owned by persons outside of Delaware are not
subject to Delaware taxes. For a small business deciding weather
or not to incorporate in Delaware it is necessary to measure the
cost of qualifying as a "foreign corporation" in the state of
operation versus the amount that will be saved by incorporating
a small business in Delaware. Typically it is not advantageous
for small businesses to incorporate outside of their home state
as even small businesses are usually required to pay corporate
taxes in both the state of foreign operation and the state of
incorporation.
About the author:
Jacob Wren operates
Small">www.small-business-assistance.com">Small Business
Assistance - a resource site for entrepreneurs that offers
advice on
sm
all business incorporating and an array of other small
business topics.
