Why Your Home State May Be the Best Place to Incorporate a New Business

There’s one question I’m asked more often than any other when I’m counseling clients about business formation. What is the best state to incorporate a new business? There are the usual choices, of course. Delaware, Nevada, and Wyoming. These states all provide a number of benefits to the up and coming entrepreneur. Tax perks, rich history of corporate law, extra protections for corporations and the individuals who incorporate them.

But are those states really right for your business?

Any decision about where to form your new business entity obviously has to be made on a case by case basis. As an attorney, I’d be doing you a disservice to tell you that you absolutely must form your corporation or LLC in one particular state because, let’s face it, different business entities need different things and what works well for one company will be exactly the wrong thing for another.

What I can tell you, however, is to consider your home state as a frontrunner along with the usual top three choices. Our law firm is located in California—a state widely regarded to be, shall we say, less than friendly to small businesses. Except for tech startups. California is plenty friendly to those. In any event, California has high taxes, some foolish laws, and some courts have a penchant for trying to hold the officers and directors liable the debts of the business. Aside from all that—its a perfectly good place to incorporate your business.

So you’re a new business owner who wants to form a corporation. Say its a plumbing company. You live in California, you’re licensed in California, your employees all live and work exclusively in California, your shop is in California. You can see where this is going—you’re totally tied to California for your business. But you decide you want to incorporate your business in Delaware because a friend of a friend told you that’s the place to do it. Tax breaks, good law, whatever reason you have. If you decide you want to incorporate in Delaware, you’re going to have to pay for the incorporation there, file all of their paperwork, pay at least their minimum taxes, and so on. But, because you’re operating your business entirely in California, California is going to require you to register as a foreign corporation in California. Why? Because you’re transacting intrastate business here. And you’re going to have to pay for the registration here, file all of the paperwork, pay California’s taxes, and so on.

Sound like a good idea?

I didn’t think so.

That’s just one situation where it may be better to form your new corporate entity in the state where you’re actually conducting business. There are others, but that’s a topic for a one on one conversation with our clients. If you’re considering starting your own business and are looking for an attorney to help walk you through the process from start to finish, give us a call and we can put you on the right track—no matter what state you’re interested in.

Image courtesy: Robert S. Donovan

Eric Norton

Eric Norton

Business & Trademark Attorney at Norton Law Corporation
Eric Norton is a business and trademark attorney, and the founder of Norton Law Corporation, a modern law firm designed to help entrepreneurs with their legal needs. Eric also enjoys photography, gaming (tabletop and video), watches, and good design.
Eric Norton

Have something to add?

Loading Facebook Comments ...
4 replies
  1. mireya_broger
    mireya_broger says:

    A motivating discussion is worth comment. There’s no doubt that that you need to publish more on this issue, it may not be a taboo matter but usually people don’t talk about such subjects. To the next! Cheers!!

    Reply
  2. akasse
    akasse says:

    Everyone loves what you guys are up too. Such clever work and reporting! Keep up the fantastic works guys. I’ve included you guys to my personal blogroll.

    Reply
  3. Otto
    Otto says:

    Hello there, just became alert to your blog through Google, and found that it’s truly informative. I’ll appreciate if you continue this in future. Numerous people will be benefited from your writing. Cheers!

    Reply
  4. Heinrick
    Heinrick says:

    Good info and right to the point. I am not sure if this is in fact the best place to ask but do you people have any ideea where to get some professional writers?

    Reply

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply to mireya_broger Cancel reply

Your email address will not be published. Required fields are marked *

No Trackbacks.