Where and when should we incorporate?
UPDATED: Oct 1, 2022
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Where and when should we incorporate?
My partner and I are 50/50 partners and are taking our first steps towards
creating a modular home design business. We basically build residential
modular homes at our factory in Asia and plan to ship them to the US. We
are planning to start selling/developing with them in Albuquerque, NM but
definitly plan to expand to other states quickly.
In order to bring our homes to the US, We must go through a building
department process and register as a manufacturer. This does not
specifically require us to be incorporated but there are many references to
the fact that we probably should be on all the forms. Ditto for our building
materials suppliers forms.
We haven’t sold any units yet but are starting to think about where and when
we should incoporate. I’ve always heard you can wait until you earn above a
certain amount before its required for you to form a legal entitiy. I also
remember hearing something about there being many advantages to forming
your llc in Nevada or Delaware but cant figure out if this would be a good
idea for us. We dont want to be prohibited from doing business in our initial
launching state NM because we are incorporated in another state. Please
Asked on October 19, 2017 under Business Law, Massachusetts
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 5 years ago | Contributor
1) You are never required to form a legal entity: you can be a partnership as long as you like.
2) You should, however, either incorporate or form an LLC: doing so will protect your personal assets (e.g. home, car, money in the bank, etc.) from most business related obligations or liabilty, apart form any debts or loans your guaranty or certain tax obligations. Why not enjoy that protection from the very beginning, before you may incur any business debts or liability?
3) There is little to choose from between a corporation (especially a sub-chapter S corporation, which is a "pass through" or "disregarded" entity and avoids double taxation) and a LLC, though a LLC involves less paperwork and formalities. Most small businesses nowadays use an LLC, not a corporation, nowadays.
4) There is no real advantage to one state over another: the law about LLCs and corporations is almost the same in all states. The "advantages" of DE or NV come from the familiarity of their courts with some technical issues that simply are not an issue for most small businesses. Generally, you set up the business where you are primarily located.
5) Whenever you dod business in another state (i.e. expand to another state), you simply register to do business there, which is cheap and easy and can be done online with the state government.
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