Choosing An Ideal State To Form A Corporation
You will not have to undergo any legal requirements for forming an LLC or new corporation in the home state. If you own a small business corporation, then you will not have any advantage to form a corporation in a different state since you will have to register your foreign corporation in the home state and then end up paying the same taxes and fees.
Decisions To Make
One of the very first decisions to make for a business owner is deciding where they would like to incorporate. Most commonly, business owners pick their home state. However, many people think that there may be certain benefits of incorporating in a state that is tax free or corporation friendly. For this reason, many people like to incorporate in Delaware. However, your decisions need to be based on 3 major factors:
• Cost considerations
• Jurisdictional considerations
• Tax considerations
It is wise that you seek legal counsel since the process can be quite complex, especially if you have plans of incorporating in a different state. Every state will require a resident agent for a corporation. There are many private companies providing the services of a resident agent in different states. Additionally, you will also be required to have a foreign corporation for registering or qualifying before you start conducting your businesses within the state. The process will include filing paperwork, paying fees, as well as paying penalties.
If a certain business has headquarters in one state but is incorporated in another state, then the business will be subjected to service of process and jurisdiction in the other state. This may be inconvenient for numerous reasons.
For starters, all your legal notices will be received by your registered agent within that state. This will cause a detail in your materials since you will only receive them once your registered agent forwards them. There are many materials that are time sensitive and can easily be misplaced or delayed. Secondly, your corporation will be governed by the laws of this state, and these laws might be different from your home state.
While the primary corporation characteristics remain similar in each state, the tax rate that applies differs. Certain state tax rates can reach an excessive 10%. If you incorporate in Nevada however, you will not incur any franchise tax as well as state income tax. Additionally, income tax considerations will not be applicable to say an S corporation or an LLC since these are not taxed on business levels.
Therefore, tax advantages can be seen in a state like Nevada. Despite that, if you are operating in a different state, then you will have to pay your home state taxes.
While there are many corporation friendly states, you need to keep in mind everything that goes along with the incorporation. For instance, even if you wish to incorporate in Nevada, you will still have to be aware of the different rules and regulations in that state.