The Real Reason To Incorporate In Delaware: Mobility

By Jeff Unger

Between 1995 and 2000, almost half the US population (more than 120 million people) moved to a new residence; and nearly 10% moved to a new state. The increased likelihood that you will move during your business career impacts the decision of where to incorporate your business.

Let’s say you’re a writer who lives in New York, so you decide to incorporate your business in New York. A few years later, your husband’s company transfers him to California. No problem, you think: have computer, will travel. So, you move to California and set up shop there.

Not so fast! In order to operate in California a foreign (i.e., out-of-state) corporation must qualify to do business in that state. When that happens, our hypothetical company becomes obligated to pay franchise taxes and file tax returns in both California and New York. Now that transfer from the chilly northeast to sunny California isn’t looking so hot. What to do, what to do?

Unfortunately, there is no hassle free way of changing the corporation from a New York corporation to a California corporation. While conversions have become easier in recent years, it is still a hassle and a waste of legal fees.

Delaware provides a fantastic alternative. Instead of incorporating in New York, our writer could incorporate in Delaware, where the annual franchise tax is only $125/ year. Then, the corporation can be qualified to do business wherever the principal place of business is located. For example, the corporation would be qualified to do business in New York initially. Later, when the writer moves to California, the corporation would (1) surrender the right to transact business in New York, and (2) qualify to do business in California.

By the way, why not Nevada? Because contrary to popular myth, Nevada is not cheap. The annual fees in Nevada are quite a bit more than Delaware.

Although there are a lot of good reasons to incorporate in Delaware, many of the benefits of Delaware incorporation are applicable primarily to larger corporations. The ability to easily and inexpensively start doing business in a new state, on the other hand, is a significant benefit for small corporations.

Learn more about incorporating in Delaware. Stop by Jeff Unger’s site where you can learn more about the benefit of forming a Delaware corporation.

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Tags: entrepreneurs, Form a corporation, incorporate, incorporate in Delaware, incorporate online in California or Delaware, Legal, Small Business, start a delaware corporation, venture capital

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