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7/9/07

Do Not Be Fooled By Incorporation Fees

If you are planning to form a corporation, you have many options as to where to form. You may know that Delaware is a popular state in which to incorporate. Put basically, Delaware laws are very corporate friendly. I will get into the specifics in another post. Back to the point, many states advertise that you should incorporate in their state because the fees are less than other states.

Although this may be true, you have to consider where you are going to be doing most of your business. For example, Nevada demands a relatively inexpensive fee to incorporate. However, if you are doing all of your business in California, and merely incorporated in Nevada to save on the incorporation fees, consider this; in order to do business in a state other than the state in which you incorporated, you have to file for a foreign corporation certificate. This basically means that you incorporated in another state and want to do business in the present state.

What is the big deal with filing for a foreign corporation certificate? A foreign corporation certificate costs money, and has a yearly maintenance fee. So before you incorporate in a state to “save money” think about how much the foreign corporation fee is and do some serious calculations to determine whether you are really saving any money!

Another popular advertisement by states is the tax advantage pitch. Some states have a smaller tax rate than others. However, money earned in one state is taxed in that state. Therefore, seriously weigh the advantages of forming out of state against the disadvantages, and do not be duped by “money saving” sales pitches that may end up costing you in the long run.

There is a popular saying among entrepreneurs, “do not step over dollars to pick up dimes.” I implore you to avoid doing the same thing!


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