Delaware Incorporation: Avoiding the Hassle of Reincorporating in Another State - By: Jeffrey Unger

Life can be unpredictable, and in a few years time, you could be living in a different home, a different city, or even a different state. In fact, between 1995 and 2000, almost half of the population in the United States had moved to a different residence and 8.4% of those people moved to a different state.

Surprisingly enough, moving to a different state has a significant impact on where you choose to incorporate your business. For example, if you were living in New York and decided to incorporate your business there and then had to move to a different state such as California, you would not be able to just pick up where you left off. Your business would first of all be considered a foreign corporation, as it was incorporated out-of-state, and it would need to qualify to do business in that state. Essentially, you would have to pay franchise taxes and file tax returns in both the state you incorporated your business in and the state you recently moved to and want to operate your business in.

This is not to say that it is impossible to reincorporate in another state, such as California, the issue is that there is no simple way to change the jurisdiction in which a corporation is formed. Going back to the example posed above, in order to reincorporate in California and change the jurisdiction of formation, a new California corporation must be formed. Then, you must merge your previous corporation, say the one in New York, into the new California corporation.

Don't worry, there is an easier and less expensive alternative for deciding where to incorporate. First of all, instead of forming a corporation in the state where you will initially conduct business, you should incorporate your business in Delaware. Then you can qualify the corporation to do business wherever you decide to start it up, and if you move and take the corporation with you, you can easily qualify to do business in a new state and surrender its home state qualification.

You should be aware that this alternative approach does require the corporation to pay the annual fee in Delaware (around $60/year) and to maintain an agent for service of process in Delaware. This additional cost is worth the prospect that your corporation would be able to move to another state in the future and be able to do business without any glitches.

This approach does involve a little bit of extra expense, even for a corporation that is still doing business in its original home state, because the corporation has to (1) pay Delaware's very small annual fee (about ($60/year) and (2) maintain an agent for service of process in Delaware. However, the marginal additional cost gives the corporation an enormous amount of flexibility where there is any possibility of a move to another state one day.

You may ask yourself, why do this in Delaware, why not Nevada where it could be cheaper? The truth is that contrary to popular myth, Nevada is not cheap, and in fact their annual fees are steeper than those for Delaware. There are plenty of positive benefits for incorporating in Delaware, but most of those are more relevant to larger corporations. Smaller corporations benefit from being able to start doing business in a new state in an easier and more cost effective manner.

About the Author

Do you need guidance and advice for forming, managing, or incorporating your business? Check out the site for eMinutes, every small business' leading option for forming and managing corporations and LLCs. Learn more about their services and how they can help your business become successful at eMinutes.com.

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