New York businesses are not bound to incorporate within the state to operate within New York 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 New York, while others opt for more “business friendly” states and incorporate in Delaware, Nevada or Wyoming. In some cases, even if you wish to establish a business in New York, it is advisable to form a company outside New York and enter New York as a foreign business – one of the many reasons is the New York may impose liability on company shareholders.
Here are some of the more important factors to consider when choosing a state for incorporation:
- 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. States, also, require the 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 the 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 sometimes considered 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 tax 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.
- New York Small Business Taxes
- Liability of New York Shareholders for Unpaid Debt of a New York Company
- New York S Corp vs. LLC Basics: Choosing your Corporate Entity in New York
- Registering Your Foreign Business in New York
- Should I Purchase a Franchise Or Start My Own Business in New York: Six Factors For Your Consideration
- Starting A Nonprofit Corporation in New York