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If you're about to start the process of incorporating your company, you need to give some thought to which state you are going to incorporate it in. Your home state does not have to be your state of incorporation, you can in fact incorporate your business in any of the states within the US. For larger businesses there are advantages to incorporating outside of your home state, with Delaware in particular offering a number of benefits.
Before we discuss the benefits of incorporating outside of your own state, and in particular in Delaware, you should first consider whether incorporation outside of your home state is a viable option at all.
If your company is relatively small, any potential advantages of incorporating outside of your own state may be outweighed by the costs of doing so. In general you should stick to your own state if your business is small.
One of the costs you will incur are those of an agent to represent you in the state you choose. When you incorporate in a state other than your own, your company will be considered as a foreign corporation within that state, and as such, you'll be required to appoint an agent.
Also, you should consider your geographical trading area. If your business is based solely on your home state, it will probably make most sense to incorporate there. But if you trade across multiple states, incorporation elsewhere may make sense.
So, why incorporate in Delaware? What are the advantages that make Delaware such a popular state for incorporating in?
1.Delaware offers favourable tax treatment in the form of low franchise taxes and no state corporate income tax for companies that operate outside of Delaware
2.Delaware has low incorporation fees
3.Delaware courts are very pro-business and support companies incorporated in the state, with much of its corporate law written to protect the rights of shareholders
4.There is no minimum capital requirement when incorporating, and only one incorporator is required
5.The state has no sales tax, personal property tax, or intangible property tax on companies incorporated there
6.A company can keep its books and records outside of the state
Because of all these advantages, over 250,000 companies are incorporated in Delaware. In fact over fifty percent of all companies trading on the New York Stock Exchange are Delaware corporations.
You should seek qualified legal advice before deciding to incorporate outside of your own state, and then decide whether or not you will benefit from the advantages above.
Richard Taylor MBA is a Chartered Management Accountant and Company Director with a specific interest in small business start ups. You can read more about choosing your state of incorporation at:
http://www.incorporate-my-business.com
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