Choosing between a California corporation and a NY corporation


3

Are there any advantages to establishing a corporation in California as opposed to NY? The minimum taxes ($800) every year that need to be paid in California is a bit of a turn off. Are there any good reasons to having a corporation established in California apart from being a resident?

The corporation would be for an EE engineering/internet company.

Tax California Registration

asked Apr 3 '10 at 18:44
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Vnchopra
418 points

5 Answers


4

...are there any good reasons to
having a Corporation established in
California apart from being a resident?

Yes. If you register a company in a state other than your home state, you will still have to register your company in your home state as a foreign entity (assuming you will be doing business in your home state). This means that you will end up paying fees in both your home state as a foreign entity and in the state that you register your business.

In addition to that, if your LLC is taxed as a partnership (instead of a corporation), you will still have to pay personal income taxes in your home state.

In my opinion, the state income tax issue for your business is a much more important deciding factor than the yearly state fee. The yearly state fee will probably be negligible when compared to the business' income tax responsibilities. I'm not a lawyer, and I don't have all the details, but in general I would advise against registering your company in a state other than your home state.

See these similar threads for more information:

answered Apr 4 '10 at 01:09
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Zuly Gonzalez
9,194 points

2

If you do any business in California, you will have to pay the $800 minimum franchise tax regardless of where you incorporate. Note that Corporations do have a first year exemption from that minimum franchise tax. LLCs do not.

For NY, there is an expensive newspaper publication requirement, typically $500-$1000+ depending on which county your primary office in NY is in.
There are cheaper counties to publish in, but technically, your office should be in the county in question. Remember, this is on top of the NY minimum franchise tax (which is MUCH lower, yes).

Disclaimer: This post does not constitute and should not be relied on as legal advice nor does it establish an attorney-client relationship.

answered Apr 4 '10 at 16:30
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Henry The Hengineer
4,316 points
  • I understand if you have offices in another state then you have to start paying taxes for that state as well, but what if this company was solely internet based and customers would be from every state..then how would you go about that when it comes to taxes? – Vnchopra 9 years ago
  • This is my post from another thread: Generally, in order to be taxed in a particular state, a business must have a “substantial nexus” to the state. This depends on the existence of 1) Headquarters, 2) Employees, 3) Bank Accounts, 4) Servers, and/or 5) Return stores. If the company has one or any factor of these things, it is likely to have some “nexus” to the state. No single factor is determinative, and each case must be determined on a case-by-case basis. Where are your servers & bank account located? The disclaimer above applies. – Henry The Hengineer 9 years ago

0

NY had similar franchise fees. I think it recently changed, but I am not sure of the structure of the fees. I would just incorporate where you do business.

If the $800 per year is a real issue then I humbly suggest that there is something wrong with the business/business model.

answered Apr 3 '10 at 22:56
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Tim J
8,346 points

0

Another consideration is travel expenses during a potential litigation. If a lawsuit is filed against the company, it's usually in a state where the company is incorporated (well, that's based on my experiences).

answered Apr 8 '10 at 19:19
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Output Logic
341 points

0

States have pretty much wised up the former advantages of Delaware, Nevada, etc. Best to incorporate in your home state, IMHO.

answered Apr 8 '10 at 22:49
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Woz2
11 points

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Tax California Registration