NASE Blogs

WHERE TO FORM YOUR NEW CORPORATION OR LLC

Thursday, March 24, 2011

If you're starting a new business you might want to try to assure that somewhere down the line your personal assets are protected from being taken by someone who has successfully filed a lawsuit against your business.  In such cases you will probably decide to use either the corporate or the LLC form of business.   Once you've made that decision you have to decide whether to form the business in your home state or whether there are sufficient advantages to forming it in some other state to make that option attractive.   A business entity, such as a corporation, formed in a state other than where its headquarters are is called a "foreign corporation" by that other state. 

Several states run ads on the Internet suggesting that there are advantages to forming your business entity in their state.  Many new businesses choose Delaware because it has well-developed and favorable laws with respect to most corporate issues.  Other states advertise other advantages such as no state income tax and/or complete confidentiality.  Some states allow formation of a corporation with one person holding all of the corporate offices and being the only stockholder and the only director.

If you choose to form your business in another state you will still have to register it with the state where your company headquarters are located and where you are doing business and you will be subject to that state’s laws and regulations including payroll and income taxes.  If you do business in several states there may be additional issues depending on the nature of your business.  If you form your business in another state you will have to have a registered agent in that state and you will also have to have a mailing address and a mail-forwarding service there.  Although the same person or company will often provide all of these services the minimum fee in most cases will be in the neighborhood of $1000.00 or more per year. In addition, depending on what state you formed your business in, you will probably be required to purchase a state business license, and perhaps a city business license, or both even though you aren't actively selling anything or conducting any actual business transactions there.  Fees for such licenses vary in amount. 

If you do choose to form your business in another state an occasional issue, depending on the quality of your mail-forwarding service, is that you might receive mail anywhere from several days to several weeks later than if it had been mailed directly to your headquarters.  You must consider whether such possible delays might be significant in the larger scope of conducting your business.

In most cases when a new business is being formed the bottom line about where to form the busines is this:  Absent some specific need, there is probably little or no advantage to forming your business anywhere other than in the state where it's headquarters will be located.  Regardless of what you decide, we at NASE congratulate you on starting your new businss and our experts stand ready to assist you.    

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