The proliferation of online companies — which can be as simple as someone selling merchandise on Amazon or Etsy — has highlighted the practice of forming a business entity in a different state from the home of the owner. For instance, many corporations have been formed in Delaware due to the state’s Chancery Court, which efficiently handles business disputes. Another reason for incorporating in Delaware is that many investors are, understandably, more attracted to investment opportunities tied to Delaware-based corporations.
For business owners, there are numerous benefits and drawbacks of forming a business in Delaware or another business-friendly state and operating it from your home state. If you decide to incorporate in another state, though, you will need to jump through a few extra hoops to be compliant.
Additional Fees and Filings
It doesn’t matter if you don’t do any business in Delaware; if you form your company there, the state of Delaware will regard your business as a domestic entity within its borders. You will need to hire a registered agent in Delaware who is authorized to act on your behalf and receive legal notices; this costs a few hundred dollars per year. Next, you will need to foreign-quality your business in your home state and other states where you do business. This means another set of fees for your company. Each state has its own laws regarding annual filing and fee requirements for both domestic and foreign entities.
Domestication
Let’s say you already formed your company in another state but only do business in your home state. You’ve realized that it would just be simpler to have your business incorporated in the one state. The easiest way to do this is to domesticate your business. Just about every state has laws that lay out how you can domesticate your company there. Generally, though, the process of domesticating your business in another state is as follows:
- Make sure domestication is permitted in BOTH states (the current and future homes of your company).
- Check to see if your business name is eligible in the state your business is moving to.
- Get certification from your company’s current home affirming that your company is in good standing.
- Apply to domesticate in the new state.
- Dissolve your business in its current state. Do NOT dissolve your company before domesticating.
Should You Move Your Business?
When you started your business, plenty of people probably told you to incorporate in Delaware, Nevada, Wyoming, or another business-friendly state. While this is good advice for many companies, it’s not right for every business owner. Whether you’re trying to figure out where to start your company or looking to move operations, Lockhart IP is here to help. Reach out here to set up a consultation today!