Financing Your Small Business

Choosing the State in which to Form Your Business

Where should you form your entity? Does Delaware or Nevada hold some magical power that makes those jurisdictions magnets for many corporate formations? The quick answer is no.

Historically, Delaware had favorable corporate laws and a court system set up specifically to deal with corporate disputes. However, most states have caught up substantially with Delaware and have enacted modern cor­poration law. Nevada's appeal is the lack of corporate tax, and it may— depending on how you set up your company—provide some measure of anonymity for the founders.

However, the best advice is usually to form your entity in the state where you intend to do business. Eventually, if you are doing business in your home state, your friendly tax authorities will come knocking on your door. It is entirely permissible to incorporate in a state different from your home state, but you must qualify your out-of-state (foreign) corporation to do business in your home state. The concept of doing business for tax and reg­istration purposes is a vast topic. As a rule of thumb, if a corporation has a
fixed place of business, a telephone number, a business license, etc., in a state that is different from the one in which it is registered, then it is doing business in that state. In this situation, the company needs to register and qualify as a foreign corporation.

If you form your entity where you intend to do business, you will find it is easier to deal with one bureaucracy as opposed to two and just pay the taxes for one state. Most states require you to register an out-of-state entity with your state and pay additional fees if business is done there.

Choosing the State in which to Form Your BusinessStaying Focused: In the first few months, as your operations are ramped up, and research and devel­opment are conducted on your products or services, you will probably be losing money. Worry about forming mul­tiple companies in multiple states later. For now, keep it straightforward. There are too many other things to worry about—like growing the company.

Financing Your Small Business

Limited Liability Company Formation Documents

If, after consultation with your professional team, you decide to form a lim­ited liability company, you will need to file Articles of Organization with the state and draft an internal …

Corporation Formation Documents

After consulting with your professionals, you will most likely need to form an entity to raise capital. Most entrepreneurs will form either a corporation or a limited liability company. This …

Business Plan

As part of your business strategy, planning, and feasibility analysis, you will commit your plan to paper. The document produced is typically called a business plan. The purpose of a …

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