Opening a business in the US has consistently been an attractive option for entrepreneurs and businesses looking to open or expand their operations overseas, writes Heather Landau.
Regardless of your motivations, one of the first decisions you’ll have to make is the location of your business, and it’s not always as straightforward as it seems.
Each state in the US has different tax laws that have a variety of advantages - or disadvantages - depending on the type of business. A state that would be beneficial for brand new business may not be suitable for an existing small business. Similarly a state that’s considered ‘corporation friendly’ due to liberal incorporation statutes, may not be the best choice for SME businesses.
Choosing A State For Incorporation
The common choice for the state of incorporation is the home state of where your business is located. However there’s no legal requirement to do so.
While many simply opt for the state with the cheapest tax or filing fees, it’s important to note that if your business is incorporated in a different state to where you operate, you will have to register to do business in both states.
There may be instances when incorporating in a different state becomes an attractive option, but in most cases these will be reserved for larger businesses.
Doing Business Out Of State – Foreign Qualification
If you’re looking to do business outside the state of its original formation, then an alternative to company incorporation is the process of ‘foreign qualification’. Confusion can often arise as the term relates to doing business in a ‘foreign’ state and not outside of the US.
When you foreign qualify you will only have one corporation or LLC and will require only one set of bylaws, stock, shareholders and directors. Going through foreign qualification will allow you to transact business in states outside the state of company formation.
The advantage of forming a new corporation or LLC as opposed to foreign qualification is the separation of liabilities. For example, if one of your businesses is forced into bankruptcy in one state, the assets of a business in an alternative state will typically not be used to pay any outstanding debts.
Doing Business As (DBA)
Similar to ‘trading as’ in the UK, the DBA allows you to commercially register a business under a new name. The DBA is one of the easiest and most cost effective ways of registering a new company name without having to form a separate LLC or corporation for each business.
For example, if you have a corporation called Binary Computing and wanted to open a new business called Binary Software, the DBA will allow you to have multiple businesses under one coroporation.
Delaware & Nevada
For years company incorporation in Delaware has been a popular location and option. It has one of the most flexible legal systems in the US, with cases being resolved by a judge as opposed to a jury. The state’s experience with business law and the subsequent efficiencies within its legal system, ensure that if complex litigation is a consideration, Delaware could be a sensible option.
Hot on its heels and trying to replicate the success of Delaware, Nevada has been proactive in encouraging company formation. The climate makes it an ideal location for renewable technology organisations and boasts a number of advantages for new businesses.
· Nevada has no state corporation income tax
· Shareholders and directors don’t need to be Nevada residents
· There is no personal income tax for corporations or LLCs
It’s important to remember that when it comes to state taxes, it doesn’t matter where the business has been incorporated, but where you operate your business. If you run your business out of California, but incorporate in Nevada, you’ll still be eligible for Californian taxes.