How Do You Select Your Business Formation State?

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When you are selecting the type of business organization to use as the structure for your business, you must consider many factors such as limiting liability, ease of operations, and ownership interest. However, there is one factor that many business owners overlook — the state to use for the formation of their business. A corporation may be formed in any state while conducting business and being physically located in the business owner’s state of residence. A DC business attorney guides business owners in choosing the state for the formation of a business that offers the business the best advantages of incorporation. 

Choosing the State for Incorporation

If you incorporate your business in the state where you live, you should only need to pay the fees to register the company in your state. However, if you choose another state for incorporation, you most likely will be required to pay fees to that state for the incorporation and pay fees to your state for operating within the state. The concern about fees may be a moot point if you intend to operate in several states because you would be paying multiple fees regardless of the state of incorporation.

Fees are just one of the factors used to choose the state of incorporation for your business. For some business owners, the advantages of incorporating in another state greatly outweigh the fees required to incorporate in a state other than the owner’s home state. However, you should consult a DC business attorney to determine if fees are a major deciding factor in choosing the state of incorporation for your business.

Some of the important factors to consider as you choose the state of incorporation for your business include:

·      Protection of Business Assets — When choosing the state of incorporation, you want to choose a business-friendly state. In other words, you may want to choose states like Nevada and Delaware that have enacted laws that favor businesses and help protect business assets from creditors and third parties.

·      Liability Protection — A business owner must consider which state offers the best personal protection for the business owner. In addition, owners should also be concerned with protecting their investment in the business. Again, Nevada and Delaware have some of the best laws for protecting the business interest in limited liability companies.

·      Tax Incentives — Some states allow a business to incorporate within the state without paying state income taxes if they do not conduct business within the state and the business owners do not reside in the state. However, a few states have odd tax laws for corporations, so business owners should work closely with a DC business attorney to ensure they are not choosing a state of incorporation that will result in higher taxes.

·      Flexibility and Simplicity of the Management Structure — You must be very careful when choosing a state for incorporation because some states limit or severely restrict who can form certain companies, such as an LLP and LLC. Furthermore, some states have laws that may dictate other matters related to management structure such as mandatory voting rights for some owners/members and annual meeting requirements. 

·      Statutory Close Corporation Option — Failing to follow formalities applicable to the business structure, such as those required for a C corporation, could result in the company’s liability extending to the owners. However, some states have laws that relax these formalities thereby allowing a corporation to be operated more like an LLC. 

A DC Business Attorney Can Help Protect Your Business and Your Personal Assets

Because each business has unique situations specific to that business, there are many other factors that a business owner may need to consider when choosing the state of incorporation, such as income taxes, asset protection trusts and exemptions from securities registration. Choosing the state in which to incorporate your business can be a complex and challenging undertaking. 

A DC business attorney can help you weigh all options, consider the pros and cons for each state, and choose the best option to protect your personal and business interests. Business formation attorney Steve Thienel provides personalized service and legal advice for individuals in DC, Maryland, and Virginia regarding all aspects of business formation and business operations. Call today to schedule a consultation.