Forming a Corporation: Where to Incorporate

Wed Apr 1, 2009 10:13am EDT

One of the first considerations after a new business decides to incorporate is where to incorporate. For most small businesses, the answer may be as simple as registering in your business's home state, but questions can arise when you conduct business in another state, and when you are considering the state of Delaware as an attractive option. Following is a discussion on where to incorporate your new business.

Register in Your Home State

A standard rule of thumb is to incorporate in the state where the corporation will do most of its business. This rule holds especially true for smaller businesses that will likely not expand significantly, or that do not foresee conducting business outside of their home state. So, incorporating in your business's home state is usually the safest bet for your new business. Then if, after your corporation has been up and running for some time, it appears that you may need to conduct business in another state, you can always register in another state as a foreign corporation (see next section).

Each state has its own legal requirements and registration procedures for new businesses wishing to incorporate. To learn more about incorporating in your state, visit the Corporations or Business Services Division (or similar business filing agency) of your state's government.

Registering in Other States: "Foreign" Corporations

When a business that is incorporated in one state wishes to conduct business in a second state, the corporation is considered a "foreign" corporation and may need to register prior to doing business in the second state. For example, if a registered New York corporation wishes to become authorized to do business in Connecticut, it will likely need to obtain a Certificate of Authority for Foreign Corporation (form in PDF format) from the Connecticut Secretary of State. Most states require that out-of-state corporations pay a filing fee in order to register as a foreign corporation.

The Lure of Delaware

Many large public corporations choose to incorporate their businesses in the state of Delaware. Traditionally, Delaware's corporation laws have been seen as friendly to business -- in the form of a business-friendly state corporations code, low costs of incorporation, lenient information disclosure requirements, and corporation-friendly income tax laws for corporations operating in the state.

For smaller corporations, balancing against these positive factors is the simple fact that, unless your corporation is physically located in Delaware, it will still need to register for operation (and likely pay income taxes) in your home state. The additional cost and time required to do so will likely negate any benefit that your small business might gain from incorporating in Delaware. In addition, recent trends have seen many states altering their laws to appeal to businesses, so in the near future corporation-friendly laws like those in Delaware may become more the rule rather than the exception nationwide.

Get Help Now

Deciding where to incorporate and initiating the incorporation process are important steps on your business's path to success. To ensure that your new business complies with your state's legal requirements at every stage in the corporate formation process, you may wish to consult an experienced business attorney.

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