Three-person startup not sure which state to incorporate in


2

Currently forming a three-person startup; our members live in Tampa, Florida & Hayward, California & Arlington, Virginia.

It will be a politics-based web game, and we are reasonably sure that it should be created as a C-class corporation (though we are open to alternate suggestions here as well; we were previously considering the formation of an LLC instead but have been advised to pursue a c-corp to better attract venture capital).

We are currently unsure which state we should be incorporating in -- the Hawyard, CA member currently handles most of our transactions, but we are also considering Virginia, Delaware, and a few other possibilities.

Is there a best practice for this sort of thing?

LLC Incorporation USA

asked Dec 11 '11 at 07:33
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Fox
126 points

4 Answers


2

There will probably be little difference. You should check with someone who knows (such as an attorney) to see which state (a) has the fewest ongoing restrictions, (b) has cheaper initial and annual fees, and (c) is more likely to be attractive to investors in the future. I doubt if there is much difference overall.

answered Dec 11 '11 at 15:38
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Xpda
652 points

2

Considering some of the other answers on this page, I'm editing mine to make it more comprehensive.

The conventional wisdom is: "Delaware, because that's what everyone else does" and that statement does seem to hold some water.

Here's the wikipedia article on Delaware Corporate Law
http://en.wikipedia.org/wiki/Delaware_General_Corporation_Law A line from the article:

Delaware is well known as a corporate haven. Over 50% of U.S.
publicly-traded corporations and 60% of the Fortune 500 companies are
incorporated in that state.

and here is a writeup from the Delaware Department of State - Division of Corporations
http://corp.delaware.gov/whycorporations_web.pdf Excerpt:

Why do corporations choose Delaware? I think the answer is not one
thing but a number of things. It includes the Delaware General
Corporation Law which is one of the most advanced and flexible
corporation statutes in the nation. It includes the Delaware courts
and, in particular, Delaware’s highly respected corporations court,
the Court of Chancery. It includes the state legislature which takes
seriously its role in keeping the corporation statute and other
business laws current. It includes the Secretary of State’s Office
which thinks and acts more like one of the corporations it administers
than a government bureaucracy

One of the other posters brought up a point about California, for example, requiring you to register in CA regardless of where you incorporate if you are doing "repeated and successive transactions" in CA. For you this is particularly relevant with one of your co-founders who you say does most of your transactions living in CA.

So, to summarize, the answer to your question of "Is there a best practice for this sort of thing?" is:

Yes, figure out if there is a reason to not incorporate in Delaware and if you cannot find a good enough reason, then go with Delaware.

answered Dec 11 '11 at 17:19
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Umassthrower
458 points
  • Delaware used to have significant advantages, but many if not most states have matched them in the past few decades. – Xpda 8 years ago
  • I think that statement is pretty much false xpda. Maybe I just feel that way because I researched my state vs. Delaware and the difference was huge, but everything I've read suggests Delaware is still far and away the best place to incorporate. In addition the edit I made to bneely's answer below with the link to Business Friendliness - 2010 would also suggest that Delaware is still the best place to incorporate from out of state. I think the best answer is probably "Figure out why you shoudln't go with Delaware and if you can't then go with Delaware." – Umassthrower 8 years ago

1

There are many different ways to rank states in terms of business-friendliness, and many companies publish such lists. Here's one from CNBC: America's Top States For Business - 2010 You'll have to determine your own criteria based on what you plan to do in both the short term and in the long term.

--Edit

Since this list is actually mostly about locating your business in a state the particular sublist that you might be most interested in, assuming you're not moving to that state but simply incorporating, is this: Business Friendliness - 2010. Which suggests Deleware is the place to be.

answered Dec 11 '11 at 16:57
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Bneely
575 points

1

You stated that the CA-based founder handles most of the transactions. If those constitute "repeated and successive transactions" within CA, then if you incorporate elsewhere you also will have to register the corporation to do business in CA as a foreign corporation. This would mean double up-front and ongoing fees, so you might as well incorporate in CA to pay only one set of fees. For more information, please see Doing Business in CA? Be Sure to Register.

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.

answered Dec 12 '11 at 10:00
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Dana Shultz
6,015 points

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