Incorporating In Delaware Simplifies Moving
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According to census figures, between 1995 and 2000, 120 million people over age 5-almost half the US population-moved to a new residence. Of the 120 million people who changed residences during that period, 8.4% moved to a different state. This high rate of interstate mobility has important implications when it comes to choosing the state in which to incorporate your business.
In our practice, we see a lot of writers who are, for example, living in New York. Naturally, it makes sense to incorporate in New York. Then, for one reason or another, our writer moves to California.
When the writer wants to open a bank account in California, the first thing the bank will require is that the corporation qualify to do business in California. A foreign (i.e., out-of-state) corporation must qualify to do business in the state where it is operating. Unfortunately, when that happens the corporation becomes liable for both California and New York franchise taxes; and tax returns must be filed in both states.
Although it has certainly become easier to convert the New York corporation to a California corporation, there is no simple and inexpensive way of doing so.
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.
What about Nevada? Because Nevada is far more expensive than Delaware.
Although Delaware laws and its pro-business court system are frequently touted as benefits to businesses, for small businesses, particularly those owned by entrepreneurs who might consider moving, the real reason to incorporate in Delaware is mobility.
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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