Let’s say you are an entrepreneur who lives in Arizona, so you decide to incorporate your web-based business in Arizona. A few years later, your wife’s company transfers her to New York. To operate your company in New York as a foreign (i.e., out-of-state) corporation, you would qualify to do business in that state. When that happens, your company becomes obligated to pay franchise taxes and file tax returns in both Arizona and New York. Ouch!
Traditionally, the options to avoid paying Arizona taxes and filing Arizona tax returns were to either dissolve the Arizona corporation and form a new corporation, or form a new corporation and merge the Arizona corporation into it. Although widely believed to be a simple matter of reincorporating in another state under Internal Revenue Code Section 368(a)(1)(F), until very recently, this was no simple process. In addition, the traditional method of forming a new corporation resulted in the inconvenience of a new FEIN, bank account, and other undesireable logistics.
Recent legislation in Delaware makes it possible for entities to convert to Delaware companies (without an inconvenient merger). On August 1, 2009, Sections 265 and 266 of the Delaware General Corporation law paved the way to easy reincorporations and even made it possible for one entity type to convert to another entity type (e.g., converting a LLC to a corporation).
The process is simple. The first step is to conver the Arizona corporation to Delaware corporation. This requires filing a Certificate of Conversion along with a Certificate of Incorporation. The second step is simply to qualify the Delaware corporation to do business in New York.
Only Delaware makes it easy for a small business owner to pick up and move the corporation to a new state without the hassle of coversion or merger. Let’s say you wanted to move the corporation to Florida. To do so, you would simply surrender the right to transact business in New York and qualify to do business in Florida. Although Delaware is touted as a haven known for its low annual fees and well founded corporate law, the real benefit of Delaware to a small business owner is mobility.
Want to find out more about incorporating in Delaware, then visit eMinutes Magazine, which contains articles about forming and structuring your business, including videos about Delaware
{ 0 comments… add one now }
Leave a Comment