Incorporating: Where & How

Would you walk outside in freezing snow without clothes? No. So why operate as an SP or GP? Every business owner needs personal liability protection.

• Personal liability protection for personal assets
• Many tax advantages — lowers tax liability
• Perpetual life — not affected by death/bankruptcy of a shareholder
• Professional image for public and investors
• Can buy at wholesale, saving thousands
• Can offer stock to the public — raising capital you don't pay back
• 50,000 new lawsuits filed every week

A business's first order of business should be to incorporate. You never know when an angry supplier or sue-happy client will slap your company with a lawsuit.

Two issues to weigh:

1. Dollars-and-cents analysis: costs of incorporating in-state vs. qualifying as a foreign corporation
2. Advantages/disadvantages of each state's corporate laws and tax structure

For closely held corporations doing business primarily in one state, a local incorporation is typically preferable. For establishing corporate credit, incorporate in your home state where you're headquartered — banks prefer in-state corporations.

• No state income tax on individuals or corporations
• No franchise taxes, capital stock taxes, inventory taxes, or taxes on corporate shares
• Case law prevents easy piercing of the corporate veil
• Stockholders are not public record; no IRS information sharing
• Only one person needed to form; no minimum capital required
• Meetings can be held anywhere in the world
• Nominee officers allowed for privacy

• Unlimited ability to issue stock — no limits on authorized shares
• One person can fill all corporate positions
• Privacy — no shareholder names filed with state
• Minimal restrictions and corporate formalities
• Low annual fees — $50 minimum, $200 per $1M of in-state assets
• Officers/directors not responsible for corporate debts
• No minimum capitalization required
• Lifetime proxies (other states require renewal every 6-7 years)
• No personal/corporate income tax, inventory tax, franchise tax, or gross receipts tax
• Lower startup costs, no Nevada "stigma"

More than half a million business entities have their legal home in Delaware, including 50%+ of U.S. publicly-traded companies and 58% of the Fortune 500.

• Low cost incorporation fees
• No state corporation income tax for DE corps not operating in DE
• No name/address disclosure for initial board
• One person may hold all offices
• Claims heard by the highly-respected Court of Chancery
• Can form without going to Delaware

If your goal is to eventually take your company public, incorporate in Delaware.

Your corporation is a new "person" — choose its name carefully, as you would for a child.

Avoid naming it after yourself or family members if privacy matters. Choose neutral names that don't limit you — "XYZ Enterprises Inc." rather than "Larry's Typing Service." Catchy names that stick in people's heads work best for marketing.

A corporation conducting business in one state when incorporated in another is a "foreign corporation." You must register/qualify in each state where you do business. Penalties for not qualifying include fines, denial of contract enforcement rights, and personal liability for officers.