Incorporation (business)

Why You Shouldn’t Incorporate your NY Business in Delaware or Nevada

by Fred Abramson on April 5, 2011 · 1 comment

If you are starting a new business, everywhere you go you hear people tell you that you must incorporate in Delaware or Nevada. I have some news for you. They are probably wrong.

As a business law attorney, day in and day out, savvy, smart entrepreneurs like yourself actually speak into their shiny new iPhones 4  and proudly proclaim that they registered their business in Delaware. I’m thinking that the lawyer who defended Kato Kaelin’s housemate who now earns his living by hawking do it yourself legal services  just earned another fast buck.

You probably think because all of your favorite big companies are incorporated in Delaware, you should too. But these large corporations have specific reasons why they should incorporate in two states.  The primary reason why you should incorporate is because you can protect your personal assets. Incorporating in Delaware will not afford you any additional layer of protection. You may also incorrectly believe that you can save money in taxes.

Here are some more reasons why you shouldn’t incorporate in Delaware or Nevada:

  • It’s Less Expensive Fallacy. True, it is less expensive to initially incorporate in Delaware. Nevertheless you have to register to do business in New York.
  • Failure to Register Your Business in New York Could be Deadly. If you fail to register do business in New York and your business becomes subject to a lawsuit, your personal assets may become exposed.
  • You Still Have to Pay Taxes. Simply  because Delaware and Nevada do not have personal or corporate taxes doesn’t alleviate your duty to pay taxes in New York.
  • The Less Litigation Fallacy. Some attorneys would argue that since most Delaware corporations do not end up litigating disputes because their professional advisers examine volumes published opinions and construct deals to avoid lawsuits.  In New York the caselaw on corporations is voluminous.
  • The No Jury Fallacy. In Delaware, your case would be tried by a judge, not a jury. But the simple fact is that 99 percent of the cases settle before trial.  In my experience, it is very rare to hear of a runaway jury in New York County.
  • Privacy. In the past, many people decided to incorporate their business in Delaware because they do not require director or officer names to be listed in the incorporation documents. However, the IRS have become aware of this and the rules governing privacy or much more strict. Since you need to register your business in New York, you are going to have to disclose your CEO anyway.

The Law Office of Frederic R. Abramson practices Business Law and Civil Litigation in New York. If you have any questions regarding Incorporation, feel free to contact me at 212-233-0666

 

Enhanced by Zemanta

When Should You Incorporate?

by Fred Abramson on January 7, 2011

Image representing Etsy as depicted in CrunchBase
Image via CrunchBase

You have this great business idea and perhaps you are short on funds. You know that you should speak to a lawyer. So you decide to call my office looking for some advice.  The first question that you will probably ask is if you should incorporate your business.  My answer is nearly always yes.  Here’s why:

  1. You own assets. Corporations are great because if play by the rules, your personal assets will be protected.  If you decide to sell a Amigurumi Zombie Panda on Etsy and it turns out that your cute toy is defective, you can be personally sued if you fail to incorporate. The lawsuit itself could take five years and a judgement is good for 20 years. Even if you don’t have any assets now, if you have faith in your idea (you should) your   For under a grand in legal fees, you could establish your company as a  S Corporation in New York.
  2. You have a partner. If you have a business partner, you are absolutely crazy if you don’t incorporate. You are certifiable if you don’t have an operating agreement.  There are millions of things that can go wrong. What happens if you are the one who has the great idea and your business partner is the money guy and you have a falling out? Who has ownership of the business?
  3. You want to borrow money. If you want an SBA loan, you are required to incorporate.
  4. You want to sell to the government or a large company. Many government contracts are only open to corporations. Due to the crackdown by the IRS on independent contractors, large companies rather hire a corporation rather than a sole proprietor.
  5. You want investors. Do you really think that an angel will be willing to invest your unincorporated business? How are they suppose to get a piece of the action?

For more reading: Top Ten Legal Mistakes Made by Entrepreneurs.

If you have a question regarding incorporating your business in New York, contact the Law Office of Frederic R. Abramson at 212-233-0666.

Enhanced by Zemanta