Most Startups Don’t Need to Incorporate in Delaware
It used to be true that “everyone” was incorporated in Delaware due to its business-friendly laws, but many of these terms simply don’t apply to startups, or the differences don’t exist anymore. Most business professionals now recommend that your first choice should be your home state or the state where your startup resides.
I live in Arizona, so I’ll use that state as an example. If your home state is Arizona, and you plan to do business there, following is a list of five key advantages of incorporating your business in Arizona:
- Incorporation fees are low.
- The process is simple, including the convenience of geographical proximity.
- Local attorneys, if required, are more familiar with Arizona laws.
- Your startup automatically gets an intrastate securities law exemption.
- No need to register as a “foreign” corporation in the state of operation.
There are still business considerations that might override low cost and simplicity. For example, if your business is likely to get venture capital soon, have a large number of shareholders, or you have a high probability of going public, it might still be a good idea to incorporate in Delaware or Nevada due to these two states more size-friendly laws. The same applies if you are a foreign startup that needs to incorporate in the US to operate with American customers.
For the rest of us, there are distinct advantages to staying close to home. Let’s take a closer look at some of these advantages:
- Arizona incorporation fees are low. Filing fees vary from state to state but will fall anywhere from $50 in Mississippi to $410 in Nevada, including administration fees. Arizona is close to the bottom, with statutory fees of only $60. Even if you choose to add the expedite fee of $35, and consider another $100 for publication requirements, the costs to incorporate in Arizona are very reasonable.
- The process is simple, including the convenience of geographical proximity. To incorporate a corporation in Arizona requires that you file Articles of Incorporation with the Arizona Corporation Commission, publish the incorporation filing in a newspaper of general circulation three times, and submit an affidavit of publication back to the Commission. Visit their offices in Phoenix or Tucson for personal service.
- Local attorneys, if required, are more familiar with Arizona laws. If your company needs a complex structure, organizationally or financially, the assistance of a local attorney may be required. He will be familiar with any unique Arizona requirements for organizational structures, record keeping, capitalization, debt financing, the role of shareholders, distributions, personal liability, and state tax considerations.
- Your startup automatically gets an intrastate securities law exemption. To qualify for the intrastate offering exemption, a company must be incorporated in the same state where it is offering the securities and carry out a very significant amount of its business in that state. If you incorporate and do business in Arizona, this item alone can save you a significant amount of management time, paperwork, and legal fees.
- No need to register as a “foreign” corporation in the state of operation. Most states have laws that require entrepreneurs to re-register a Delaware company in the state where it is actually doing business, and unfortunately, re-registration involves more than a few hours of paperwork.
But don’t forget that forming the new corporation is just the “tip of the iceberg” with respect to operating a business in the corporate form. Although it is relatively easy and inexpensive to incorporate a business in Arizona, I recommend that you don’t hesitate to consult an Arizona corporate attorney when incorporating for issues that may require legal advice and action.
Now is the time to get started. With a little luck, your new startup should be up and running in 30 to 60 days