How to choose the best location for your business

Where should you form your entity? Does Delaware or Nevada hold some magical power that makes those jurisdictions magnets for many corporate formations?

The quick answer is no. Historically, Delaware had favorable corporate laws and a court system
set up specifically to deal with corporate disputes. However, most states have caught up substantially with Delaware and have enacted modern corporation law. Nevada’s appeal is the lack of corporate tax, and it may—depending on how you set up your company—provide some measure of
anonymity for the founders.

However, the best advice is usually to form your entity in the state where you intend to do business. Eventually, if you are doing business in your home state, your friendly tax authorities will come knocking on your door. It is entirely permissible to incorporate in a state different from your home
state, but you must qualify your out-of-state (foreign) corporation to do business in your home state.

The concept of doing business for tax and registration purposes is a vast topic. As a rule of thumb, if a corporation has a fixed place of business, a telephone number, a business license, etc., in a state that is different from the one in which it is registered, then it is doing business in that state. In this situation, the company needs to register and qualify as a foreign corporation. If you form your entity where you intend to do business, you will find it is easier to deal with one bureaucracy as opposed to two and just pay the taxes for one state. Most states require you to register an out-of-state entity
with your state and pay additional fees if business is done there.

Staying Focused: In the first few months, as your operations are ramped up, and research and development are conducted on your products or services, you will probably be losing money. Worry about forming multiple companies in multiple states later. For now, keep it straightforward. There are too many other things to worry about—like growing the company.

 Qualifications for Starting a Business

Any individual may form a company. Generally, the minimum age is 18. In most states, you are not required to be a resident of the state to form a company. Some states even allow one company to form another company.
 

Immigration Concerns

Persons who are neither citizens nor legal permanent residents of the United States are also free to organize and run any type of business organization in their own name. The LLC would be the most advantageous, because it allows foreign nationals as owners (unlike an S corporation) and it avoids corporate taxation (unlike a C corporation). Two legal issues should concern foreign persons when starting a business—their immigration status and the proper reporting of the business’s foreign owners. 
The ownership of a U.S. business does not automatically confer rights to A visa to enter the United States may be permanent or temporary. Permanent visas for business owners usually require investments from $500,000 to $1,000,000 that result in the creation of new jobs. However, if
structured right, there are ways to obtain visas for smaller investments. 


Visas: For more information on this area, consult an
immigration attorney or visit the United States Citizenship
and Immigration Services (USCIS) website, at
www.uscis.gov.


Temporary visas may be used by business owners to enter the U.S. These are hard to get because in most cases, the foreign person must prove that there are no U.S. residents qualified to take the job.
United States businesses that own real property and are controlled by foreign persons are required to file certain federal reports under the International Investment Survey Act, the Agricultural Foreign Investment Disclosure Act, and the Foreign Investment in Real Property Tax Act (FIRPTA). If these laws apply to your business, consult an attorney who specializes in foreign ownership of U.S. businesses.


 HOW TO PROCEDURES  

Having an understanding of the characteristics of the typical entities used by entrepreneurs and a grasp of the advantages and disadvantages of each is an important first step on your journey. However, it is equally important to know how to get started. The following are checklists of
actions to be taken and issues to be considered when starting your entity.

Sole Proprietorship

  • File or open all accounts, property, and licenses in the name of the owner. (States require the filing of no special forms in starting a sole proprietorship.)

  • File for a fictitious name (e.g., John Jones doing business as (d/b/a) Phoenix Car Wash) with the state or county, if necessary.

  • Apply for a federal Employer Identification Number if you are going to
    have employees.

     

General Partnership
  • Prepare a written Partnership Agreement to spell out rights and obligations of the parties.
  • Some states (previously mentioned on page 5) require registration, but most do not.
  • Most accounts, property, and licenses can be in either the partnership name or that of the partners.
  • File a fictitious name statement if you are doing business in the name of
the partnership.

Limited Partnership
  • Draft and file a one-page Certificate of Limited Partnership with the state, along with the appropriate filing fees.
  • Draft and sign a complete Limited Partnership Agreement (agreement
    should be signed by all partners).
  •  Have an attorney organize a limited partnership and prepare the
    Limited Partnership Agreement because of the complexity of partnership
    taxation. (The Limited Partnership Agreement is a private document and
    is not filed with the state.)
  •   If you offer to sell units of limited partnership interests to investors, the
    Limited Partnership Agreement should be part of the disclosure document
Corporations
  • File the Articles of Incorporation with the state, along with the appropriate filing fees. The articles set forth the name of the company, its authorized capital structure (how much common and preferred stock a corporation can issue), establishes an address for the company, and identifies a registered agent.
  • After filing the articles, an organizational meeting is held. At the first meeting, bylaws are adopted, directors and officers are appointed, stock is issued, and other formalities are adhered to in order to avoid the corporate entity being set aside later and treated as though it never was formed.
  • Licenses, bank accounts, and vendors are taken in the name of the corporation.
  • States require ongoing annual filings that list the officers, directors, and stock structure of the company.
  • The annual report is usually due in March or April of each year, and is subject to penalties and interest if filed late.
  • Corporations are also required to keep ongoing corporate governance records (minutes).
  • The bylaws are a private document and are not filed with the state.
Limited Liability Company
  • File Articles of Organization with the state, along with the appropriate filing fees. (The Articles of Organization establish the name and address of the company, identifies the registered agent, and defines the term of the company. Most states allow an LLC to have a perpetual existence like a corporation.)
  • An LLC is generally not required to have much in the way of corporate
    formalities.
  •  Licenses, bank accounts, and vendors are taken in the name of the
    company.
  • Most states require an LLC to have a governing document called an
    Operating Agreement. Drafting an Operating Agreement is highly recommended
    even if it is not required by state law.
  • The Operating Agreement is a private agreement among the members
    of the company and is not filed with the state. (However, if you sell
    membership units to investors, the Operating Agreement should be
    included as part of the disclosure documents, because the investors are
    becoming new members of the company.)

Business Comparison Chart

 

 

BUSINESS START-UP CHECKLIST2

Make your plan
  • Obtain and read all relevant publications on your type of business
  • Obtain and read all laws and regulations affecting your business
  • Calculate whether your plan will produce a profit
  • Plan your sources of capital
  • Plan your sources of goods or services
  • Plan your marketing efforts
Choose your business name
  • Check other business names and trademarks
  • Reserve your name and register your trademark

Choose the business form
  • Prepare and file organizational papers
  • Prepare and file a fictitious name document (if necessary)
  • Prepare and file with the state the initial report of officers and directors (if necessary)
     
Choose the location
  • Check competitors
  • Check zoning 
Obtain necessary licenses
  • City
  • County
  • State 
  • Federal
Choose a bank
  • Checking
  • Credit card processing
  • Loans

Obtain necessary insurance
  •   Workers’ Compensation
  •  Automobile
  • Liability
  • Health
  • Hazard
  • Life or disability

File necessary tax registrations
  • Obtain federal EIN by filing Form SS-4
  • Obtain state tax identification number (if necessary)

Set up a bookkeeping system 
  • Keep track of receipts
  • Hire an accountant
  • Keep separate accounts for personal and business
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