Tuesday, November 04, 2008

Organize Your Business Where in The State Where You Are Located

Entrepreneurs starting businesses frequently have notions about organizing their companies in distant jurisdictions. Delaware and Nevada tend to be the jurisdictions of choice for many large companies and start-up entrepreneurs sometimes follow suit.
If you are a large business with many shareholders, or maybe even a public company, there are some legal advantages management may have by organizing in one of these states. However, for most businesses, there is no discernable advantage to organizing elsewhere.
For most businesses, the effect of organizing in a state other than the one where your business is located merely increases your costs. For example, if your business is organized in Delaware as an LLC but it is operating only in New York, not only do you have to pay filing fees, franchise taxes and fees for a registered agent in Delaware, you are also required by law to file as a foreign entity in New York, which includes meeting New York’s publishing requirement (approximately $1,300 in New York County). Essentially, you’ve doubled your start up fees for no appreciable advantage.
If down the road your business grows and there is a material advantage to organizing in a different jurisdiction than your home state, you can change the businesses’ organization state inexpensively through a simple migratory merger. At that point, your business should be in a better position to absorb the extra costs.
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