Setting up a company often depends on the purpose of the company. Will you be attracting outside investors, will you have customers in other states, are you looking for a way to mitigate state taxes, and what legal protections will you and your shareholders need? It doesn’t matter if you are starting a Texas corporation or a corporation in New York—analyzing every aspect of the legal process is critical for success.
As such, you will need to consider several variables when choosing where to set up your company. These include the cost, taxes, the legal system, where your sales will come from, and even the wishes of your investors – after all, he who has the gold writes the rules. With that in mind, here are some things to consider before incorporating.
How Much Will It Cost?
States compete with each other to attract company registrations. This becomes apparent when you compare the fees tied to setting up a new company in Connecticut and California (two of the most expensive states) with other states across the country.
While these fees are only charged once, states with lower costs are preferred by those who are trying to bootstrap a startup. Depending on the state you chose, you may also need to file as a “Foreign Corporation”. This doesn’t mean that you are no longer a U.S. citizen, it does mean is that your company is not registered in the state where it is doing business.
Just because you have paid to register your company doesn’t mean that your work is done. To keep your company in good standing you will need to submit an annual filing to the Office of the Secretary of State in the state where your company is registered. This will include details about your business, the stockholders, and the directors.
Failure to do so might mean that your company is no longer considered in good standing and this might mean that your company may be deregistered by the state. In addition, you may also be required to obtain a business license and failure to do so could have significant consequences such as cancellation of your insurance policy or even worse.
Don’t take these matters lightly as ensuring your company is properly registered will ensure that you can continue to operate without interruption. In addition, having a properly registered company will make it easier if you ever decide to bring on investors as they will be less concerned about potential liabilities tied to the operation of the business.
Don’t Forget the Tax Man
Death and taxes, as the saying goes, are inevitable. In terms of the latter, some states will charge franchise taxes and income taxes. While others will assess a franchise tax in lieu of an annual fee – while others expect companies to pay both.
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