Serving business owners since 2007Where you incorporate your business can have many far-reaching repercussions down the road, so it pays to consider the decision carefully.
Some states are working hard to attract new businesses. (See Where to Incorporate: The 3-Man Fight between Delaware, “Delaware West” and “Delaware South”)
The idea that there is one “very best” state may prove to be a costly assumption for those businesses buying into the hype when researching where to incorporate. You’ll need to look beyond the hype and figure out which advantages will actually apply to your business if you incorporate in a state other than your home state.
Below are a few things to consider as you review the advantages of incorporating in a state other than your own. And, by all means, please consult your attorney and tax consultant before making a final decision. They are qualified professionals who should be familiar with your unique situation as well as the state and federal laws that will apply.
Once you have selected the state in which to incorporate your business, MaxFilings can help you form your corporation online.
Foreign qualification requirements
Foreign qualification requirements alone can be reason enough to incorporate in your home state rather than another state. In order to do business in a state, a corporation must either be formed there or be qualified to do business there. So if you incorporate in another state, you will then have to qualify as a foreign corporation in order to do business or hold property in your state.
Foreign qualification cost
Believe it or not, it actually costs more to qualify as a foreign corporation than it does to form a corporation in most states. As an extreme example, one state’s foreign qualification filing fees are more than 10 times those for forming a corporation. Even if initial filing costs are the same, annual registration fees and registered agent fees add an additional layer of cost.
Administrative expense
Keeping up with and complying with the requirements of multiple states will increase your administrative costs.
Applicable state laws
Once a corporation has registered as a foreign corporation and is qualified to do business in another state, that state’s corporation laws apply to the corporation in that state, not those of the corporation’s home state. So many of a state’s favorable corporate laws may be of no value to you since they will not apply out of state, calling into question the value of the often promoted secrecy or privacy provisions of some states.
Taxes
Incorporating in a state with no corporate income tax does not mean you won’t be subject to taxes in other states in which you do business. One could certainly expect state taxes for a corporation falling under the jurisdiction of multiple states to exceed those for a corporation answering to just one state.
Since tax issues are very complex as well as subject to interpretation, we always advise you to consult with an expert tax advisor before making decisions concerning taxes. Following the advice of unqualified advisors is often an expensive mistake.
Where to incorporate: Conclusion
Before you decide to incorporate in another state, make sure you will actually be able to profit from its favorable provisions. Many times the advertised advantages don’t produce the hoped-for value in the long run. In fact, your home state may not be so bad after all.
