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Where to Incorporate
One of the unique features of forming a Corporation is choosing which state to incorporate your business in. You do not necessarily have to incorporate in the state you reside in or the state you plan to do business in. Each of the fifty states and the District of Columbia have different laws governing Corporations, so evaluating the benefits in each jurisdiction is an important facet in the incorporation process.
If you plan to conduct business primarily in one state, then incorporating in that state may be the most logical and simplest choice. However, if you plan to conduct business in more than one state, it is very valuable to weigh the pros and cons of incorporating in another state. The following are a few of the key features of a state’s corporate laws to consider:
- What rights and responsibilities are the officers, directors, and shareholders of the corporation guaranteed in that state?
- What are the rights of creditors in regards to Corporations in that state?
- What rate does that state use to assess Corporate taxation?
- What incorporation fees are imposed by that state?
Here is an excellent example of a business involved in the process of incorporating and trying to make a decision about which state to incorporate in:
Fred and his sister are starting a catering business in their home state of California and have decided to form a Corporation in order to take advantage of the tax benefits and liability protection that are guaranteed to Corporations. They are concerned about protecting their personal assets, including their homes, from any potential lawsuits that may arise from their business activities. They will be spending a significant amount of time traveling back and forth from appointments, as well as delivering and serving food in many expensive homes and commercial venues. For Fred and his sister, making the decision to incorporate in California is the best choice. If they were starting a nation-wide catering business and planned to conduct business in several different states, then they might consider the benefits of incorporating in different states, such as Delaware or Nevada, in order to take advantage of enhanced Corporate benefits in those jurisdictions.