Are you wondering in which state you should incorporate your startup?
There is a trend among young technology startups who hope to go public some day to choose Delaware for incorporation without evaluating whether it is really the best choice for their business. Delaware is where public companies incorporate and Delaware incorporation may be required by some venture capitalists, but does that mean you should incorporate your startup there right now?
Watch this video for a quick overview of the advantages and disadvantages of incorporating your startup in Delaware versus your home state.
[If you're viewing this via email, see the video here: http://bit.ly/yb5Zk8.]
Now that you have a basic understanding of why some favor Delaware incorporation, what do you think? How do you plan to deal with this issue in your business? Let me know in the comments.
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A cautious person may ask whether a limited liability company, rather than a corporation in any state, is the proper vehicle. While many angel investors, venture capital companies, etc. may prefer a C corp for tax “distance” and a non-close corp for centralized management, most companies including most successful companies do not get bought out by out-of-state capital or become publicly traded. For those companies, an LLC may be a reasonable choice.
Also, in MD a corporation or LLC takes 48 minutes to form, or so it did last Thursday when I formed one at 301 W Preston Street in Baltimore before the Department of Assessments and Taxation. Had the weather been worse, it probably would have gone more quickly. But I commend you on puncturing the Delaware hype; a large fraction of corporations formed there would not be formed there but for perseverant hype.
Hi Bruce!
Thanks for your comments. You make an excellent point which is that first one needs to determine which business entity is right for their business and then the following question may be which state.
I think the S-Corp is a very good option for new startups that have multiple founders and hope to obtain outside funding but, of course, there really is no one size fits all solution. Its a shame that more entrepreneurs don’t seek a lawyer’s and accountant’s counsel before choosing their entity. I plan to address that issue in a future video.
Once again, thank you for watching and for your comments.