Should my very small business incorporate in Delaware?

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Question:

I have heard that Delaware has the most business-friendly corporation laws. Would I save money or gain other benefits if I incorporated my new two-owner business in Delaware, or is it better to do so in my own state?

Answer:

Delaware's public relations folks should be proud -- when it comes to incorporating, the very mention of the state's name carries a mystique not unlike "Camelot." But the fact of the matter is that while incorporating in Delaware may make sense for large, publicly held corporations, it's usually not worth the effort for small, privately held corporations that do business only in their home state.

First, you're not likely to save any money in taxes by incorporating in Delaware. If your business makes money from operations in your home state, you still must pay your own state's income taxes on this income.

Second, while incorporation fees may be lower in Delaware than they are in your home state, you will have to qualify to do business in your state in addition to incorporating in Delaware. This process takes as much time and costs as much money as filing incorporation papers in your own state. And you would also need to appoint a corporate agent to receive official notices in Delaware -- another cost you'd have to bear.

Your best approach is probably to stay where you are and incorporate in your home state.

To learn more about the process, see Nolo's book, Incorporate Your Business, by Attorney Anthony Mancuso.

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