Most New Jersey business owners and entrepreneurs will ponder the question of whether to incorporate in Delaware or New Jersey early in the business process. It has become common knowledge that incorporating in Delaware is a popular decision for corporations. But does this decision suit everyone? Is it appropriate for small, closely held or family companies that incorporate? Let’s look at some of the factors involved.
Long Term Goals. When considering whether to incorporate in Delaware instead of your home state, think about your long term goals for the company. Will the corporation have many shareholders and eventually go public? Will the corporation seek investors and authorize a large number of shares? Corporations are often formed in Delaware due to the vast case law that exists, particularly for large corporations with millions of authorized shares. Investors typically prefer investing in corporations that will be held to Delaware laws and protection. Therefore, startups are particularly keen to form corporations early on. If, however, your corporation is small and held by only a few shareholders, your home state will likely be more than adequate to address your legal requirements.
Business Location. You must also take into account where you will do business. If you plan to incorporate in Delaware but sell your goods and services in the state where you are located, you must still register in that state. In New Jersey, you would be required to register as a foreign corporation and pay annual state registration fees in addition to any filing or registration requirements for your Delaware incorporation.
Taxes. And let’s not forget those tax obligations. If you do business (i.e. sell) in New Jersey you will be responsible for registering and paying taxes here despite being incorporated in Delaware. You will still have tax and state filing responsibilities like a NJ domestic corporation and be required to meet the legal and tax requirements for your domestic state (where you incorporate).
As you can see, there are many considerations involved when choosing where to incorporate, particularly between highly popular Delaware and the state where your business is located. For large corporations, it may make the most sense from an economic and legal standpoint to incorporate in Delaware. But the average small business may prefer to skip the extra legal and financial hassles and incorporate in their home state. Be sure to speak with a business attorney on this subject for legal guidance for your small business.
This blog posting is provided only for general informational and educational purposes and does not constitute legal advice or legal opinions. An attorney-client relationship is only established with the firm via a formally, mutually signed engagement agreement.