New York businesses are not bound to incorporate within the state. In fact, start-up businesses in New York should consider incorporating outside of New York based on several factors for consideration. Some choose to keep things simple by incorporating or forming an LLC in their home state, while others opt for more "business friendly" states and incorporate in Delaware, Nevada or Wyoming.
Here are some of the more important factors to consider:
- Setup & Recurring Fees: While a minor consideration in the grand scheme of establishing and operating a business, you need to pay a one-time filing fee to the state’s secretary of state office in every state for forming your business. That fee can be as low as $50 and as high as $455, depending upon the location. After establishment, most states charge an annual fee to maintain your business along with submission of an annual report.
- Franchise Taxes: A franchise tax is levied by a state on corporations and other entities for the privilege of incorporating or registering to transact business in the state.The method for calculating franchise taxes varies by state. Some states charge a minimum tax regardless of earnings or losses, while others base their franchise tax on the number of shares and par value. Nevada and Wyoming charge no franchise tax at all.
- Legal and Court System: A main reason why so many successful large companies are incorporated in Delaware is because it has a separate court to resolve business disputes that do not conduct jury trials. Many business owners prefer bench trials because matters are handled quicker and because juries are unpredictable and inconsistent.
- State Corporate Income Tax: In addition to federal taxes, most states also charge a state corporate tax on income. Nevada, South Dakota and Wyoming do not charge any corporate income state or a personal state income tax. Ohio, Texas and Washington have a tax on the gross company revenues. However, these advantages do not apply to a business located in another state - you cannot avoid your home state's tax structure by incorporating in another state. To take advantage of these benefits, you would have to physically move to the desired location.
Based on these and other factors, states create a measurable "business climate" that many calculate to determine the best - and worst - states to conduct business. Forbes has compiled one such list.
This list is far from exhaustive. Your specific business will also drive your decision. However, when determining where and how to set up for new business, you should be mindful of such factors and weigh them against your own business concerns._____
*Gene Berardelli may be contacted at: GeneBerardelli@ipglegal.com.
Gene is a New York street-smart attorney with an extreme passion for success. Gene specializes in litigation, arbitration and general corporate law for New York-based and international clients. He, also, is the host of a popular New York talk radio program.