When starting or spinning off a business, there are hundreds of decisions and a few important factors to consider – not the least of which includes how & where to establish your legal business entity. While seemingly simple, the filing process has its benefits and nuances that you need to know.
Regardless of the state in which a business is (or will be) physically located, a substantial number of early stage companies opt to incorporate in the state of Delaware, which for them reflects a smart strategic decision that brings with it several legal and tax benefits.
- For example, filing as a Delaware corporation provides the best corporate liability protections in the United States. The Delaware Court of Chancery focuses solely on business law, and uses judges instead of juries to adjudicate corporate legal disputes.
- In the area of tax planning, there is no state corporate income tax for companies that are formed in Delaware but do not transact business there. The state does charge a modest annual franchise tax on these entities, however.
The task of incorporating in Delaware is fairly straightforward, and there are a number of online resources that offer step-by-step instructions for the process. But it is worth noting that once completed, you are really only half-way home.
Massachusetts is typical of most states in having its own special requirements for Delaware-incorporated companies doing business within its borders. Using Massachusetts as an example, here are five tips for doing business in your home state as a Delaware corporation:
- Register as a foreign entity – In order to get the authority from your company’s home state to operate a Delaware corporation there, businesses must register in their home state as a foreign entity. Technically, when filing as a Delaware corporation, your business is domestic to the state of Delaware and foreign to every other state. This is called ‘foreign qualification.”
- Procure all required documents – Massachusetts has an application processand requires a state fee as well as additional documents from Delaware, including but not limited to a Certificate of Good Standing. The turnaround time for acquiring a Certificate of Good Standing may be a couple of weeks …so plan accordingly.
- Secure a certificate of authority – When all documents have been submitted and approved, Massachusetts will issue the company a Certificate of Authority, giving it permission to operate in the state. Turnaround time for this step is typically 2-3 business days. However, if no certificate is forthcoming after about a week, it is worth a follow-up call to the Secretary of the Commonwealth’s corporations division to determine the status of your application.
- Prepare and file an annual report – Every corporation registered in the state must also complete an annual report at the end of each fiscal year, no matter if the corporation is foreign or domesticto Massachusetts. The Massachusetts annual report is often due before March 15, and Delaware’s annual report, including yearly Franchise Tax, is due before March 1.
- Prove your Delaware registration — Your business will also have to present a completed Foreign Corporation Certificate of Registration, on which you will have to list the names and titles of the corporation’s directors and officers.
There are a variety of business situations – including the demands of capital funding sources – in which the timeframe for completing your company’s corporate filings is especially compressed. At RBF, we stand ready to work side-by-side with you and your legal team to help ensure your business decisions and processes go smoothly, and bring you favorable results.
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Christopher Schuster is a CFO Consultant at the Boston-area CPA and business advisory firm RBF, and works with the firm’s Outsourced Accounting Systems and Services (OASyS) practice. The group helps make complex business decisions less daunting by providing CFO and controllership services to growing companies on an outsourced basis. Mr. Schuster can be reached at 781-321-6065 or [email protected].
What To Incorporate Your Businses
When starting or spinning off a business, there are hundreds of decisions and a few important factors to consider – not the least of which includes how and where to establish your legal business entity. While seemingly simple, the filing process has its benefits and nuances that you need to know when choosing where to incorporate.
Regardless of the state in which a business is (or will be) physically located, a substantial number of early-stage companies opt to incorporate in the state of Delaware, which for them reflects a smart strategic decision that brings with it several legal and tax benefits.
- For example, filing as a Delaware corporation provides the best corporate liability protections in the United States. The Delaware Court of Chancery focuses solely on business law, and uses judges instead of juries to adjudicate corporate legal disputes.
- In the area of tax planning, there is no state corporate income tax for companies that are formed in Delaware but do not transact business there. The state does charge a modest annual franchise tax on these entities, however.
The task of incorporating in Delaware is fairly straightforward, and there are a number of online resources that offer step-by-step instructions for the process to incorporate in Delaware. But it is worth noting that once completed, you are really only half-way home.
Massachusetts is typical of most states in having its own special requirements for Delaware-incorporated companies doing business within its borders. Using Massachusetts as an example, here are five tips for doing business as a Delaware corporation in your home state :
- Register as a foreign entity – In order to get the authority from your company’s home state to operate a Delaware corporation there, businesses must register in their home state as a foreign entity. Technically, when filing as a Delaware corporation, your business is domestic to the state of Delaware and foreign to every other state. This is called ‘foreign qualification.”
- Procure all required documents – Massachusetts has an application process and requires a state fee as well as additional documents from Delaware, including but not limited to a Certificate of Good Standing. The turnaround time for acquiring a Certificate of Good Standing maybe a couple of weeks …so plan accordingly.
- Secure a certificate of authority – When all documents have been submitted and approved, Massachusetts will issue the company a Certificate of Authority, giving it permission to operate in the state. Turnaround time for this step is typically 2-3 business days. However, if no certificate is forthcoming after about a week, it is worth a follow-up call to the Secretary of the Commonwealth’s corporations division to determine the status of your application.
- Prepare and file an annual report – Every corporation registered in the state must also complete an annual report at the end of each fiscal year, no matter if the corporation is foreign or domesticto Massachusetts. The Massachusetts annual report is often due before March 15, and Delaware’s annual report, including yearly Franchise Tax, is due before March 1.
- Prove your Delaware registration — Your business will also have to present a completed Foreign Corporation Certificate of Registration, on which you will have to list the names and titles of the corporation’s directors and officers.
There are a variety of business situations – including the demands of capital funding sources – in which the timeframe for completing your company’s corporate filings is specially compressed. At Withum, we stand ready to work side-by-side with you and your legal team to help ensure your business decisions and processes go smoothly, and bring you favorable results.