Why Incorporate In Delaware? — Delaware Is The Jurisdiction Of Choice For A Mobile Generation

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.

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.

To operate the the New York corporation in California, our writer must qualify the New York corporation to do business in California. Upon doing so, the corporation becomes obligated to pay the California franchise tax ($800/year) and file a California tax return. Unfortunately, because it is a New York corporation, the corporation also must pay New York franchise taxes and file a New York tax return. That’s right – the corporation is obligated to pay franchise taxes and file tax returns in both states!

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.

Fortunately, there is a terrific alternative when planning where to incorporate: Delaware. Instead of forming a New York corporation, our writer could incorporate in Delaware and then qualify the corporation to do business in New York (or wherever the principal place of business is located). Then, when the writer wants to move to California, she simply has to surrender the right to do business in New York and qualify to do business in California. This is a hassle free way to pick up and move a corporation from state to state. While it’s true that the additional flexibility comes with a price (e.g., Delaware has an $125 annual franchise tax), the small additional cost yields tremendous flexibility.

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 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.