Location, location, location...

The importance of location

Let’s talk a little bit about locations, and how the location of your business comes into play when you’re starting your company. There’s a lot of information out there about forming LLC’s and starting corporations. People often ask about where they should incorporate. Most of them wonder whether they should incorporate in Delaware or Nevada. It’s understandable. A lot of marketing money is spent promoting those states as good places to headquarter your business. Here’s why:

Delaware has several flexible, well-developed, pro-business statutes written into their state codes for business. Nevada offers low filing fees and there are no corporate, personal or franchise taxes.

Wow. Tough call, right?

Here’s the thing. These things may benefit large companies, but small businesses (less than 5 shareholders) rarely see the same benefits. If your business is not located in either Nevada or Delaware and if you are planning to open a bank account, you’re probably better off incorporating in the state you’re actually going to do business in.

Let’s say you’re doing business in Washington State. With a Nevada corporation, you have to pay your Nevada filing fees, annual report fee and registered agent fee, plus you still have to register as a “foreign corporation” in Washington, paying the filing fees, annual report fee, registered agent fee and pay state taxes as a foreign corporation.

Yep, that’s right; sooner or later the state you’re doing business in will come after you for taxes on the money you make in that state. In a large operation with multiple offices across more than one state, there are ways to um…let’s say…get creative with your accounting? You know what I mean; it’s all over the news. Big corporations get away with paying little or no taxes on their corporate income by “getting creative” which means they use loopholes in the tax code to get out of paying taxes, er, I mean “reduce their corporate tax burden.”

If you’re a small business, again with less than 5 shareholders, your best bet may be to simply incorporate or form your LLC in the state you’re planning to do business in. Obviously, you should take this advice with a big grain of salt. Talk to an accountant and an attorney while you’re deciding on how to structure your enterprise. Location is important, just realize that there is a lot of hype out there promoting out of state incorporations – and they may not be as beneficial to small business as you’ve been led to believe. I’m not necessarily saying you should or shouldn’t do it – just understand why first. Above all other advice, you really should talk to your attorney and your accountant about it. They’ll have access to location specific information and be able to give you the most reliable advice.

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