For example, if you incorporate in Nevada but your business office is in Oregon and you do most of your business in Oregon, you will have to file and pay fees in Oregon as a foreign corporation doing business in Oregon, in addition to incorporating and paying fees in Nevada.

This dual filing can be expensive and can result in substantially more record keeping which may outweigh any potential advantages. Some larger corporations are registered as foreign corporations in every state, but this is expensive and time consuming for most smaller businesses.

Occasionally, there is a valid reason for incorporating in a state different than where you conduct business. There may be some special tax or liability advantages in a particular state that are beneficial to your special type of business.

If you operate a business that provides its product or services everywhere, such as an internet-based business, then you have more choices. However, if you do substantial business in any particular state, you may still be required to register in that state as a foreign corporation.

For more information on corporate filing offices visit:
http://nass.org
http://www.keytlaw.com

Usually, the statutes provide that only a person holding the license required to practice the professional service can be a shareholder or at least a majority shareholder. In addition, only those holding the professional license can normally be a director or officer of the corporation except for the corporate secretary.

The reason for these restrictions is that the professionals are strictly regulated by license requirements of their profession and the law does not want unlicensed people making decisions that might compromise the professional’s judgment on matters within their expertise.

On the other hand, some states have adopted special statutes for a “close corporation” which describes a corporation with a small number of shareholders that is authorized to function without directors. This bypasses some of the normal corporate formalities involved with a board of directors and supposedly simplifies the process.

My experience is that in some cases this may make operation of a small corporation easier but on the other hand, it sometimes complicates it because the business world is accustomed to dealing with directors.

For this reason, owners or shareholders of a “close corporation” may find themselves trying to explain to a banker or other business person why they don’t have directors and why they don’t need director approval for various corporate actions. As a practical matter, the “close corporation“ structure may not provide that much benefit after all.

Both Delaware and Nevada have promoted the incorporation business because it is a source of revenue to the state and it provides business and employment opportunities. However, the benefits touted by these states, in many cases, may be more beneficial to larger companies and not as helpful to smaller businesses.

Although Nevada or Delaware may be good choices for incorporation in some cases, the best advice for smaller businesses is usually to incorporate in the state where your business is primarily located and where you do the most business.

For example, if you incorporate in Nevada but your business office is in Oregon and you do most of your business in Oregon, you will have to file and pay fees in Oregon as a foreign corporation (meaning a corporation from another state).

This cost is in addition to incorporating and paying fees in Nevada. This dual filing can be expensive and can result in more paperwork and record keeping which may outweigh any potential advantages.

Sole Proprietorship – Occurs when a single individual engages in business (in some states a husband and wife business might be considered a sole proprietorship). The advantage of the sole proprietorship is the ease of starting.

There are usually no formal requirements to do business as a sole proprietor, except that some states require a general business license for all businesses, regardless of the form or entity. The big disadvantage of the sole proprietorship is the risk of liability.

If someone sues the business and gets a judgment, they are entitled to satisfy (collect) on the judgment by going after not only the business assets but also the personal assets or property of the individual owner of the business.

Partnership – Is generally defined as the operation of a business for profit by two or more individuals. The advantages and disadvantages of a partnership are similar to that of a sole proprietorship. A partnership is fairly easy to start with few formal requirements in most states.

A written partnership agreement is not required but is certainly recommended. However, the risk of liability becomes more pronounced in a partnership because each individual’s personal assets are at risk for the actions of the other partners as well as their own.

Regular or C Corporation – This basic corporation is another legal form or structure for conducting business that is authorized by all states. Corporations have sometimes been called legal fictions, meaning they exist only because the state law authorizes their existence. Corporations were first authorized by state laws to provide a form of doing business where a person could invest money in a business venture without subjecting their personal assets or property to liability.

Corporations are considered separate legal entities from the people who own them, the shareholders. Thus, if a corporation is sued and a judgment from a court is rendered against the corporation, the law allows the judgment holder to satisfy the judgment (collect or get paid) only from the assets of the corporation and not the private property of the shareholders.

This is called limited liability protection. In a sole proprietorship or partnership, a judgment can be satisfied from the personal property of the individual owners of the business if there are insufficient business assets to satisfy the judgment. A corporation is a taxable entity and must pay income taxes on its net income each year. The corporation must file a return on IRS form 1120.

S Corporation – An S corporation is initially formed as a regular or C corporation and is operated and treated like a C corporation for all purposes except for taxes. An S corporation provides the same liability protection as a regular C corporation. The shareholders can elect to be taxed similar to a partnership by filing the S election form (form 2553) with the IRS.

An S corporation possesses the important characteristic of being a “pass-through” entity for federal and (most) state income tax purposes. A pass -through entity is one in which the profits or losses are not paid by the entity but rather are reported by the owners (shareholders) on their individual tax returns. This is done on a prorata basis depending on the shareholder’s percentage of ownership.

An S corporation is required to file an informational tax return on IRS form 1120S. The S corporation offers the two main benefits that most small business owners seek; 1) limited liability protection and; 2) pass-through of income and losses for tax purposes.

Limited Liability Company (LLC) – The limited liability company or LLC is a non-corporate business entity formed pursuant to authority by a state statute that provides its owners protection against personal liability from creditors and other third parties. While other business entities like corporations also provide protection from creditors, an LLC possesses the important characteristic of being a “passthrough” entity for federal and (most) state income tax purposes.

A pass-through entity is one in which the profits or losses are not reported by the entity for tax purposes but rather are reported by the owners (members) on their individual tax returns. The LLC form of business offers the two main benefits that most small business owners seek; 1) limited liability protection and; 2) pass-through of income and losses for tax purposes.

If you do business in a different state, you will be considered a foreign corporation (which means a corporation from another state) and will be required to register in that state also. If you are doing only minimal business in another state, you probably do not need to do anything. However, if you are doing substantial business in other states, then you will be required to register as a foreign corporation in each additional state.

Each state has its own definition of what “substantial business” means. However, substantial business usually means that you have an office or own real estate in a state or that you have employees in a state or that you have some other form of substantial business dealings or contacts with people in that state. It is important to find out because there can be penalties for doing business in another state when you are not registered as a foreign corporation there.

Most larger companies will be registered as foreign corporations in the different states in which they do business. Many smaller companies, depending on the nature of their business, will only be registered in their home state.