Most start-up businesses choose to operate as either a corporation or as a limited liability company (LLC) because they offer limited personal liability for the entity’s business debts. Once you have selected how to form your business, you must decide where to form or incorporate it.
A business owner can choose any state in which to form a corporation or LLC, even if the entity does not conduct business in that state. In fact, there is no requirement that the business own assets in the state if an out-of-state entity is created. Thus, it is important for you to understand the pros and cons of registering your entity in your home state versus another state.
For most small business owners, forming the entity in his or her home state (where all of the business activities will occur) is the easiest and often most affordable option. An out-of-state entity will be required to register in the home state where the business activities will occur, which results in you paying two sets of fees. Likewise, if you intend to conduct business in other states, you will need to register in those states as well. If your business requires more protection for it and its assets, paying the extra expense may be worth it to register in a more business-friendly state.
If your entity conducts substantial business in other states, it must register as a “foreign” entity in every applicable state. The fee for failure to register as a foreign entity varies from state to state, but the associated penalty can also be costly. A common example is that an unregistered business can be barred from seeking legal or equitable relief in the state’s courts. However, other parties can still file legal actions against your unregistered entity.
If you would like to discuss where your corporation or LLC should be formed or you need assistance registering as a foreign entity, we can help. We can help you comply with all the various applicable laws, regulations and rules. The attorneys at Nielsen Law Group can assist with all business formation matters. You can schedule your initial consultation by calling (480) 888-7111 or submitting a web request here.