If you’re starting a new business, then you may wish to become a corporation. The advantages of your business being a corporation include limited liability, corporate income splitting that could help reduce tax liability, and the ability to issue stock shares to attract investors. If you’ve decided to become a corporation, you’ll need to follow the necessary steps to incorporate your business. There are also certain advantages that come with incorporating in certain states.
Home State Incorporation
The general guideline to incorporating your business is doing so where your company is located. This is based on the assumption that this is where your corporation will conduct the majority of its business. This is especially true for small businesses that are not likely to expand beyond a certain extent or do not expect to conduct business outside of the particular state. Home state incorporation tends to be the safest and smartest bet because you can always register as a foreign corporation in another state later on, which you will read more about in the next section. While each state differs in its registration procedures and legal requirements for incorporating, you are likely required to pay a filing fee. This is true for all kinds of corporations, including S corporations, C corporations, and nonprofit corporations.
A business that incorporates in one state then later on decides to conduct business in another state is called a foreign corporation. While some states don’t require you to register in the other state, you typically will have to request a Certificate of Authority for Foreign Corporations from the relevant Secretary of State. You will likely have to pay another filing fee to register in the second state.
Benefits of Nevada
Certain states have attractive attributes relating to operating a corporation. Many small business owners choose to incorporate their businesses in Nevada. Here are some potential benefits of incorporating your business in Nevada:
- No franchise taxes for corporations or personal income tax
- No corporate income tax
- No fees imposed on corporate shares
- Officers, directors, and shareholders aren’t required to be Nevada residents
Benefits of Delaware
Many business owners choose Delaware as their state of incorporation. There are several business-friendly aspects of Delaware, including:
- Flexible business laws
- No corporate income tax
- No personal income tax if you’re a non-resident
- Businesses with large amounts of stock shares and complex capitalization structures have favorable taxation requirements
- People outside of Delaware who own stock shares are not subjected to Delaware taxes
- Officers, directors, and shareholders aren’t required to be Delaware residents
Weigh the Pros and Cons
While there are certainly some advantages to incorporating in Nevada or Delaware, this only applies to specific business in unique situations. Most businesses are generally better off incorporating in their own state. This is because you will most likely need to pay income taxes and register for operation in your own state. These additional costs will typically negate benefits for most small businesses.
Get Professional Assistance
Starting a business is no small task. It’s a big decision that must be made, and every decision must be met with deliberation and careful research. Choosing where to incorporate your business can be a complex decision when there are many options available. As a business owner, you want to have the best chance at success. In order for your business to succeed, you need to take important steps and make smart decisions. If you have concerns about incorporating your business, especially regarding legal requirements, regulations, and taxes, you may want to contact a professional business attorney. A business attorney can help you make calculated decisions that could set your business up for success. Making decisions on your own can be scary and nerve-wracking, so consider speaking with a business attorney for professional advice.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.