If you’re thinking about starting a new business, but are wondering where you should file your Articles of Incorporation, here are some ideas to help you figure out what to do:
The Delaware Option
Thousands of startup companies choose to incorporate in Delaware each year, due to its low incorporation and franchise fees. Companies don’t actually have to operate in the state that they file their incorporation in, and incorporated companies that conduct business outside of Delaware aren’t required to pay Delaware’s state income tax. Also, legislation in Delaware allows for corporations with less than 30 shareholders to be managed directly by those shareholders.
Yet Delaware incorporation is the most beneficial to larger companies that intend to offer their shares to the public, and for this reason the majority of Fortune 500 companies and those in the NYSE are incorporated in Delaware.
If you incorporate in Delaware but operate in another state, you may have to go through additional processes to qualify to do business in your state of operation. You may also have to file annual reports and franchise taxes in both Delaware and your state of operation.
Also, if you incorporate but do not operate in Delaware, you will need to designate a resident agent with a physical street address in Delaware. The resident agent is someone designated to receive important legal and other documents on the company’s behalf, and is a legal requirement.
The Nevada Option
Nevada’s favorable corporate laws have made it an increasingly popular state of incorporation in recent year. Nevada has no corporate profit tax, personal income tax, or franchise tax. Nevada also has minimal reporting and disclosure requirements, such as not requiring shareholders to be listed publicly.
However, like the Delaware incorporation, it is larger corporations that have the most to gain from incorporating in Nevada. If you incorporate in Nevada and operate in another state, you again may have to qualify to do business in that other state, and deal with the reporting requirements of both states.
Incorporating in your home state or state of operation is the least costly and least complicated. Unlike in other cases, you won’t have to qualify to do business in your home state as a “foreign corporation,” or file annual reports and pay income and franchise tax in multiple states.
Also, when incorporating in your state of operation, you or someone closely associated with your company can serve as your company’s resident agent, which ensures that you will personally receive important documents with no extra time, money, or extra communication required.