My Life Coach tells me I need to incorporate in Delaware, should I? Is your life coach a lawyer? Let’s dig into all the pros and cons of setting up your new business in YOUR State or another one!
We used to be able to measure how savvy an entrepreneur was (or was not) by whether their new business was set up in Delaware, and if it was setup as a (more legitimate sounding Corporation) or something else. Those days have come and gone, though; now, there’s a lot to think about, and DE is not necessarily the best spot.
Why was it best to set up in Delaware? A long long time ago, when people used slide rules instead of calculators, much less cell phones, the State of Delaware decided to massively overhaul its corporate state laws. They made the state laws far more favorable to businesses than other states. This set of corporate laws quickly became the gold standard, and most publicly traded companies “moved” to Delaware (they maintained their physical headquarters in other States, but for sake of these new great laws, they re-incorporated). DE, itself, saw a massive uptick in State funds, because all of these major American businesses moved there, and that meant that other States started to lose these funds (for taxes and State Fees).
The other States then, having caught on, largely adopted Delaware’s special laws, some of them verbatim, so that businesses no longer had such a massive incentive to register in Delaware.
That said, not all States have adopted the majority of Delaware’s laws. California, for example, is quite different from Delaware, for example. Georgia’s laws are very similar to Delaware’s, at least for businesses.
I’m no CPA, so please take this article with a hefty grain of salt, but States have very different filing fees for new (and renewing) businesses, and the State taxes differ a great deal as well. Keep in mind that this is only for STATE taxes, though, not Federal taxes (Fed taxes stay the same no matter what State you’re in). Some States’ taxes are much lower than others, and it may be more impacted by the type of business you’re in. For example, if you run a products based company, State taxes may have a very different impact on your business than if you have a professional services company.
Fees are very different, too. Most new companies in Delaware cost around $400 to setup (more if you’re hiring a registered agent in the State–which is also required). In contrast, Georgia only charges $100. Annual renewal fees are similarly diverse, too.
Taxes in Wyoming seems to have everyone excited, lately (since they’re typically much lower than other States). Florida can have benefits as well.
You don’t want the “tail to wag the dog,” though–paying an extra $3000 in filing fees, as well as legal and accountant fees to file your startup in another State when your tax and fees only benefit you by $400 per year. It’s best to run some simple projections with your accountant, and figure out how much profit your new company would have to make to warrant the $3,000 expenditure. Normally, you can “move” your company later on, too, if that becomes a good option later.
Some States require that the owner of the business be listed publicly. This may or may not be a big issue. If you want anonymity, you’ll have to incorporate in a State that, obviously, does not require the owner’s name to be disclosed publicly. Georgia, for example, does not require this. You do need to set the business up with a lawyer, so that your name is not listed, but you should be doing that anyway (wink).
I’m going to go with the stereotypical lawyer answer on this one–it depends! We’ve listed out the factors, above, with pros and cons of incorporating your company out of State. I’d look at the following:
We’ve listed them out, above, but here’s a quick breakdown of the pros and cons of common States to register in:
We’ve been setting up new businesses for our clients for over a decade, and would be happy to help you to navigate all of this. Feel free to give us a call, we’d love the opportunity to speak with you!
