One of the first considerations for business owners after starting a new business is deciding where to incorporate.
When forming a corporation, you must decide whether to incorporate in your home state or in another state. While the answer is typically in your home state, some factors may sway you to incorporate in another state.
Incorporating in Your Home State
A standard rule of thumb is to incorporate in the state where the corporation will do most of its business. This holds especially true for smaller businesses that will likely not expand significantly, or that do not foresee conducting business outside of their home state. So forming a business in your home state is usually the safest bet for a small business.
Forming an LLC or Corporation in the state where your business is physically located is called a “home state” incorporation.
Corporations and LLC’s must pay state filing fees at the time of formation, and are also subject to ongoing requirements and fees .
Incorporating in Other States
If the company is incorporated in another state but conducts business primarily in the home state, it may need to “foreign qualify.” For example, if a registered Texas corporation wishes to become authorized to do business in California, it will likely need to obtain a Certificate of Authority for Foreign Corporation from the California Secretary of State. Most states require that out-of-state corporations pay a filing fee in order to register as a foreign corporation.
Foreign qualification registers a corporation or LLC to transact business in a state other than the state of incorporation. To foreign qualify, the proper paperwork, called a Certificate of Authority, must be completed and filed and additional state filing fees paid . Foreign qualified businesses are subject to ongoing requirements and fees both in the state of incorporation and also the states of qualification.
Why Some Businesses Incorporate in Delaware
Many large public corporations choose to incorporate their businesses in the state of Delaware. This is because, traditionally, Delaware’s corporation laws are seemed to be friendly to business as related to corporation codes, lost cost of incorporation, lenient disclosure requirements and friendly income tax laws for corporations operating in the state.
Deciding Where to Incorporate
Deciding where to incorporate and starting the incorporation of your business are important steps in the success of your business. To ensure that your business complies with legal requirements in the state you wish to incorporate, you should consult with an experienced business lawyer.