We love the internet, but a 50-state-drop-down menu is not the way to select the best state for your new company. It’s a tax decision, and one you’re stuck with if you choose incorrectly. Every start up faces three initial decisions: (1) Should I form a LLC or corporation?, (2) Where should I form my company?, (3) How do I select a corporate name? These decisions have enormous tax consequences that will impact your business indefinitely. The best advice is to assemble a team, consisting of a CPA and a lawyer to analyze what makes the most sense.
SHOULD I FORM A LLC or CORPORATION? LLCs are virtually the same from a liability protection standpoint, but extremely different from a tax standpoint. Because of the exorbitant fees that LLCs must pay in California and New York, our lawyers recommend LLCs as the entity of last resort.
WHERE SHOULD I FORM MY COMPANY? The best rule of thumb is that it makes sense to form the company in the state where you are doing business. However, if you are planning to move to another state in the future, it would make sense to consider Delaware. Contrary to popular belief, it makes no sense to form the company in Nevada unless you are doing business there.
HOW DO I SELECT A CORPORATE NAME? The name your company is a business decision, and a fun one, but it’s best to use a “corporate-style” suffix (e.g., Inc., Incorporated, Ltd, LLC) to put the world on notice not to look to you personally for the liabilities of the business.
Jeff Unger is a lawyer and the founder of eMinutes. For nearly twenty years, we’ve formed corporations and LLCs for A-list movie stars, Grammy award-winning musicians, and athletes.
