Comments on: Top 5 Reasons to Incorporate in Delaware http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware Startup Law, Incorporation, Convertible Notes, Preferred Stock, Stock Options, Venture Capital Fri, 05 Mar 2010 13:09:10 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Rachael http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-1075 Rachael Sun, 28 Feb 2010 21:51:55 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-1075 Dear Ryan, I am a new startup fashion retail & wholesale company in CA. I initially registered the company as a Sole Proprietor, but was advised to incorporate my company. A business attorney has advised me to incorporate my company in DE. I have spent an entire week researching about incorporating in DE and CA. However, I would like to know by incorporating in DE, what are the paperwork and legal works that I need to be aware of, since the company will be conducted in CA. Do I also need to incorporate again in CA? Because if I need to do that, I will be double paying. Also, what is a registered agent? Thank you! Rachael Dear Ryan,

I am a new startup fashion retail & wholesale company in CA. I initially registered the company as a Sole Proprietor, but was advised to incorporate my company.

A business attorney has advised me to incorporate my company in DE. I have spent an entire week researching about incorporating in DE and CA.

However, I would like to know by incorporating in DE, what are the paperwork and legal works that I need to be aware of, since the company will be conducted in CA.
Do I also need to incorporate again in CA? Because if I need to do that, I will be double paying. Also, what is a registered agent?

Thank you!
Rachael

]]> By: Debbie Lovrich http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-897 Debbie Lovrich Wed, 10 Feb 2010 21:01:11 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-897 It sounds as if most of you are talking about single member LLCs? Because of the pass-thru taxation, you have to report the income on your personal tax return, so would be taxed in the state where you reside, regardless of where you do business. . .(right?) I had the same question. . .what's the benefit of forming in another state such as NV or DE when you have to register in CA anyway? The only plus I see is if you have assets of the company such as vehicles, office equipment or the like you'll save a lot of money in state fees if they are purchased and registered by a NV corporation rather than a CA corporation. Since the LLC itself does not pay any taxes, per se, it seems more important to choose where you legally reside. . .am I interpreting this incorrectly? Someone please set me straight! Thanks, Debbie It sounds as if most of you are talking about single member LLCs? Because of the pass-thru taxation, you have to report the income on your personal tax return, so would be taxed in the state where you reside, regardless of where you do business. . .(right?) I had the same question. . .what’s the benefit of forming in another state such as NV or DE when you have to register in CA anyway? The only plus I see is if you have assets of the company such as vehicles, office equipment or the like you’ll save a lot of money in state fees if they are purchased and registered by a NV corporation rather than a CA corporation. Since the LLC itself does not pay any taxes, per se, it seems more important to choose where you legally reside. . .am I interpreting this incorrectly? Someone please set me straight!
Thanks,
Debbie

]]> By: Josh http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-877 Josh Tue, 09 Feb 2010 03:24:44 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-877 My business is 100% over the Internet. 100% of the sales come from Latin America through PayPal. No service is provided in my home state (Massachusetts). Neither any sale is reported to be in my state. I manage and control the business 100% from my home. I want to incorporate as an S-corp ands the best state to do so is Delaware. I have few questions: 1. Do I need to register the company in Massachusetts and assume all the MA excise tax, annual report, foreign registration and any other MA fees? 2. Can I still keep managing the business from my home with out going to the registration process in my home state? 3. I will be in payroll (direct deposit) coming from the company in Delaware. Do I need to pay taxes to Massachusetts in that income? Many thanks in advance, Josh My business is 100% over the Internet.

100% of the sales come from Latin America through PayPal.

No service is provided in my home state (Massachusetts). Neither any sale is reported to be in my state.

I manage and control the business 100% from my home. I want to incorporate as an S-corp ands the best state to do so is Delaware.

I have few questions:

1. Do I need to register the company in Massachusetts and assume all the MA excise tax, annual report, foreign registration and any other MA fees?

2. Can I still keep managing the business from my home with out going to the registration process in my home state?

3. I will be in payroll (direct deposit) coming from the company in Delaware. Do I need to pay taxes to Massachusetts in that income?

Many thanks in advance,

Josh

]]> By: Ryan Roberts http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-869 Ryan Roberts Mon, 08 Feb 2010 15:47:50 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-869 @Kevin- There are also some corporate governance issues (voting requirements, indemnifications) that might prompt a startup to consider DE. Although I do agree that DE isn't for every type of startup business. @Hillari- Some believe that the nominal additional costs to be a DE corporation are worth it for the benefits. But of course, some may not realize the benefits of being in DE. It depends on the type of business. @Molly- You need to speak with an accountant/cpa/tax attorney re those issues. @Kevin- There are also some corporate governance issues (voting requirements, indemnifications) that might prompt a startup to consider DE. Although I do agree that DE isn’t for every type of startup business.

@Hillari- Some believe that the nominal additional costs to be a DE corporation are worth it for the benefits. But of course, some may not realize the benefits of being in DE. It depends on the type of business.

@Molly- You need to speak with an accountant/cpa/tax attorney re those issues.

]]> By: Molly http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-855 Molly Sun, 07 Feb 2010 06:28:21 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-855 Ryan, could you please expand on Kevin's comments? I reside in California and plan to launch an Internet company (most likely incorporate as a LLC) that will be operated in California. (1) Other than the sales tax Kevin mentioned, how does California and Delaware tax on revenues generated through services and ads. (2) Is franchise tax the same as franchise fee? (3) If not, is my company subject to California's franchise fee and how much? (4) How is the state annual tax applied here - is it based on where the operation takes place, or based on the state that the company became incorporate at? Thank you! Ryan, could you please expand on Kevin’s comments? I reside in California and plan to launch an Internet company (most likely incorporate as a LLC) that will be operated in California. (1) Other than the sales tax Kevin mentioned, how does California and Delaware tax on revenues generated through services and ads. (2) Is franchise tax the same as franchise fee? (3) If not, is my company subject to California’s franchise fee and how much? (4) How is the state annual tax applied here – is it based on where the operation takes place, or based on the state that the company became incorporate at? Thank you!

]]> By: Hillari http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-827 Hillari Fri, 05 Feb 2010 23:50:44 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-827 @Ryan - all my business is in CA, where our physical office is also located. I will have to pay the $800/yr to CA, so WHY pay the extra $89 to be incorporated in DE? We need to save costs everywhere and the extra time/confusion/$89 to be in DE doesn't make sense to me...am i missing something? @Ryan – all my business is in CA, where our physical office is also located. I will have to pay the $800/yr to CA, so WHY pay the extra $89 to be incorporated in DE? We need to save costs everywhere and the extra time/confusion/$89 to be in DE doesn’t make sense to me…am i missing something?

]]> By: Kevin http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-426 Kevin Fri, 18 Dec 2009 07:36:02 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-426 I recently incorporated in Delaware under the premise that my Internet retail business would not have to collect sales tax in CA (or any other state for that matter). After reading though tax codes and talking with accountants, I found that since I am the owner of the company and also a California resident, the BOE sees it that I will be making business decisions while in the state and therefore create a nexus. Yes, I should collect sales (use) tax in CA. After all I've been through, I'd recommend to anybody starting a new businesses that unless your investors insist upon registering in a certain state, there's no real reason to incorporate in a state other than the one you live in. On the other hand, if your business is making less that $1 million in revenue a year, registering in Delaware will cost you only an extra $75/year in franchise tax, granted you don't do business there (or $350 for every million). I recently incorporated in Delaware under the premise that my Internet retail business would not have to collect sales tax in CA (or any other state for that matter). After reading though tax codes and talking with accountants, I found that since I am the owner of the company and also a California resident, the BOE sees it that I will be making business decisions while in the state and therefore create a nexus. Yes, I should collect sales (use) tax in CA. After all I’ve been through, I’d recommend to anybody starting a new businesses that unless your investors insist upon registering in a certain state, there’s no real reason to incorporate in a state other than the one you live in. On the other hand, if your business is making less that $1 million in revenue a year, registering in Delaware will cost you only an extra $75/year in franchise tax, granted you don’t do business there (or $350 for every million).

]]> By: Parham http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-40 Parham Wed, 24 Jun 2009 02:24:45 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-40 Hi, I am in the process of registering a LLC for my consulting business. I have done a lot of research but still haven't been able to figure out whether registering the company in Delaware or California. If all these good things about Delaware are right so why would somebody register in California then? I am searching for that single benefit of California vs. Delaware. I'm living in California and for consulting I can assume that my projects will be from all over the country so I can assume that my business is being conducted in Delaware as well. Is there a reason to register the company in California vs Delaware? Please advise, P. Hi,

I am in the process of registering a LLC for my consulting business. I have done a lot of research but still haven’t been able to figure out whether registering the company in Delaware or California. If all these good things about Delaware are right so why would somebody register in California then? I am searching for that single benefit of California vs. Delaware. I’m living in California and for consulting I can assume that my projects will be from all over the country so I can assume that my business is being conducted in Delaware as well. Is there a reason to register the company in California vs Delaware?

Please advise,

P.

]]> By: Ryan Roberts http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-34 Ryan Roberts Sun, 29 Mar 2009 21:19:10 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-34 Summer, I think the Delaware tax, on top of the California tax, is nominal. If you have sufficient contact with the state of California, you'll have to pay the min $800/year tax. Thus, I don't think the additional DE tax should prevent you from picking a DE entity. Summer,

I think the Delaware tax, on top of the California tax, is nominal. If you have sufficient contact with the state of California, you’ll have to pay the min $800/year tax. Thus, I don’t think the additional DE tax should prevent you from picking a DE entity.

]]> By: Summer http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-38 Summer Fri, 20 Mar 2009 19:21:25 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-38 I am starting up an LLC that will be a completely web based company but will be run out of my home in CA. We have been told that setting up in Delaware is the way to go but it seems that we will be forced to pay the franchise tax in CA. Is there any way to get around that? If we are going to be a small start up is it best just to stick with setting up the LLC in CA? I am starting up an LLC that will be a completely web based company but will be run out of my home in CA. We have been told that setting up in Delaware is the way to go but it seems that we will be forced to pay the franchise tax in CA. Is there any way to get around that? If we are going to be a small start up is it best just to stick with setting up the LLC in CA?

]]> By: Ryan Roberts http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-39 Ryan Roberts Thu, 05 Feb 2009 06:01:03 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-39 The requirements on having to register as a broker-dealer have more to do about you than the type of fund you are sourcing funds for. Check out the SEC's guidance here: http://www.sec.gov/divisions/marketreg/bdguide.htm and also check out finra.org The requirements on having to register as a broker-dealer have more to do about you than the type of fund you are sourcing funds for. Check out the SEC’s guidance here: http://www.sec.gov/divisions/marketreg/bdguide.htm and also check out finra.org

]]> By: DaJuan http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-36 DaJuan Wed, 04 Feb 2009 16:23:03 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-36 Ryan I would like to start a business that specializes raising capital for private equity and hedge funds. It is my understanding that many of these firms are set up in delaware but are completely ran in other states i.e. NY, CT. I'm assuming I should also do the same. In addition I understand that depending on the compensation agreement with Hedge Funds my business may have to be set up as or affiliated with a broker dealer is that tru for PE also? If so how will being set up in Delaware affect that situation. Ryan I would like to start a business that specializes raising capital for private equity and hedge funds. It is my understanding that many of these firms are set up in delaware but are completely ran in other states i.e. NY, CT. I’m assuming I should also do the same. In addition I understand that depending on the compensation agreement with Hedge Funds my business may have to be set up as or affiliated with a broker dealer is that tru for PE also? If so how will being set up in Delaware affect that situation.

]]> By: Jerry http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-37 Jerry Mon, 19 Jan 2009 17:39:29 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-37 I presently operate two schedule C corporations in Florida. The more active corporation handles a great deal of escrow funds, although we have historically used only one bank account for both customer obligations and our own obligations. This poses a concern for us in terms of protecting our customer's funds from legal issues. While this might be handled by managing funds using separate bank accounts, we feel it might be safer to handle escrow funds using a completely separate corporation. Would this offer us, and our customers better protection? The liability issue is a concern because we act as agents on behalf of overseas customers, and local vendors would generally look at us as an easier target when customers dispute or don't pay for a service provided. I presently operate two schedule C corporations in Florida. The more active corporation handles a great deal of escrow funds, although we have historically used only one bank account for both customer obligations and our own obligations. This poses a concern for us in terms of protecting our customer’s funds from legal issues. While this might be handled by managing funds using separate bank accounts, we feel it might be safer to handle escrow funds using a completely separate corporation. Would this offer us, and our customers better protection? The liability issue is a concern because we act as agents on behalf of overseas customers, and local vendors would generally look at us as an easier target when customers dispute or don’t pay for a service provided.

]]> By: Review of Y Combinator Angel Investor Series AA Legal Documents | The Startup Lawyer http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-35 Review of Y Combinator Angel Investor Series AA Legal Documents | The Startup Lawyer Sun, 24 Aug 2008 20:18:55 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-35 [...] these types of financings and move on to venture capital. I have written a few posts about “Why Incorporate in Delaware?” and “Why a Corporation for Venture Capital?” explaining the subject. Of course, [...] [...] these types of financings and move on to venture capital. I have written a few posts about “Why Incorporate in Delaware?” and “Why a Corporation for Venture Capital?” explaining the subject. Of course, [...]

]]> By: Ryan Roberts http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-42 Ryan Roberts Fri, 18 Jul 2008 14:30:52 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-42 Michael- I don't think it's worth it if you plan to convert within 6 months. Michael-

I don’t think it’s worth it if you plan to convert within 6 months.

]]> By: Michael http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-41 Michael Fri, 18 Jul 2008 14:11:48 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-41 Ryan -- in the very beginnings of a startup with a partner in Virginia and thought of the LLC as a good fit for getting things in place. Is switching over to the C corp doable by year's end, or should I just bite the bullet and make it a corporation now anyway? Nothing has been signed yet, but coming up soon. Excellent and always helpfu blog -- thanks! Ryan — in the very beginnings of a startup with a partner in Virginia and thought of the LLC as a good fit for getting things in place. Is switching over to the C corp doable by year’s end, or should I just bite the bullet and make it a corporation now anyway? Nothing has been signed yet, but coming up soon. Excellent and always helpfu blog — thanks!

]]> By: What is a Delaware Flip Transaction? | The Startup Lawyer http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-32 What is a Delaware Flip Transaction? | The Startup Lawyer Tue, 24 Jun 2008 15:17:24 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-32 [...] I previously wrote a post about why you should consider incorporating in Delaware here. [...] [...] I previously wrote a post about why you should consider incorporating in Delaware here. [...]

]]> By: Ryan http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-33 Ryan Fri, 13 Jun 2008 13:41:18 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-33 ana - Here is a link to how franchise taxes are calculated in Delaware: "http://corp.delaware.gov/frtaxcalc.shtml" ana – Here is a link to how franchise taxes are calculated in Delaware: “http://corp.delaware.gov/frtaxcalc.shtml”

]]> By: ana http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-30 ana Wed, 28 May 2008 17:07:30 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-30 Does anybody know what is the franchise tax for delaware?? and if for example I icorporate in delaware but I want my office to be in NY would i have extra charges? Thanks!! Does anybody know what is the franchise tax for delaware?? and if for example I icorporate in delaware but I want my office to be in NY would i have extra charges?

Thanks!!

]]> By: Ryan http://thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware/comment-page-1#comment-26 Ryan Thu, 24 Apr 2008 16:41:33 +0000 http://www.thestartuplawyer.com/incorporation/top-5-reasons-to-incorporate-in-delaware#comment-26 @ Josh - You can incorporate your company in any state. But you must typically register as a "foreign entity" in the states that your company does business. Also, consult a CPA about your interstate/multi-state tax issues. I believe you have to apportion the taxes according to the amount of business (or amount of assets) you have in each state...but see the previous sentence. @ Carl - I get asked the Delaware vs. Nevada question frequently, so it will be the topic of a future blog post. And the "smoke screening" you refer to is usually for non-governmental entities. @ Josh – You can incorporate your company in any state. But you must typically register as a “foreign entity” in the states that your company does business. Also, consult a CPA about your interstate/multi-state tax issues. I believe you have to apportion the taxes according to the amount of business (or amount of assets) you have in each state…but see the previous sentence.

@ Carl – I get asked the Delaware vs. Nevada question frequently, so it will be the topic of a future blog post. And the “smoke screening” you refer to is usually for non-governmental entities.

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