Why Incorporate In Delaware? -- Delaware Is The Jurisdiction Of Choice For A Mobile Generation

We're no longer a nation that stays put. In fact, nearly half of the US population moved to a new residence between 1995 and 2000. If there is any possibility that you might move in the future, you should consider the impact of moving on where to incorporate your business.

Let's say you're a writer who lives in New York, so you decide to incorporate your business in New York. A few years later, your husband's company transfers him to California. No problem, you think: have computer, will travel. So, you move to California and set up shop there.

To operate the the New York corporation in California, our writer must qualify the New York corporation to do business in California. Upon doing so, the corporation becomes obligated to pay the California franchise tax ($800/year) and file a California tax return. Unfortunately, because it is a New York corporation, the corporation also must pay New York franchise taxes and file a New York tax return. That's right - the corporation is obligated to pay franchise taxes and file tax returns in both states!

Although it has certainly become easier to convert the New York corporation to a California corporation, there is no simple and inexpensive way of doing so.

Delaware provides a fantastic alternative. Instead of incorporating in New York, our writer could incorporate in Delaware, where the annual franchise tax is only $125/ year. Then, the corporation can be qualified to do business wherever the principal place of business is located. For example, the corporation would be qualified to do business in New York initially. Later, when the writer moves to California, the corporation would (1) surrender the right to transact business in New York, and (2) qualify to do business in California.

What about Nevada? Because Nevada is far more expensive than Delaware.

Although there are a lot of good reasons to incorporate in Delaware, many of the benefits of Delaware incorporation are applicable primarily to larger corporations. The ability to easily and inexpensively start doing business in a new state, on the other hand, is a significant benefit for small corporations.