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Start Ups and Emerging Companies – 101: Delaware or California – Where do I incorporate?

January 14, 2013

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If your principal place of business is located in California, then more often than not you will choose to incorporate in California. 

Why California?  If you form the company in another jurisdiction (such as Delaware), you will still need to qualify in California as a "foreign" corporation, which means that you will need to comply with California requirements and pay the same fees as if you had formed your business in California in the first instance.  On top of that, you will be required to pay the fees and franchise taxes in the jurisdiction of your incorporation (e.g. Delaware), in addition to California fees and franchise taxes.  Also, if you incorporate in another jurisdiction, you can be sued in that state as a resident of that state, even if you do not do any business within the state.

So why do people tell me to file in Delaware?  Delaware is very corporate friendly.  Public corporations generally favor Delaware laws because they give management and the board of directors flexibility to operate the company with minimal interference from its shareholders.  Delaware also has its own separate court for corporate disputes.  If your goal is IPO or Venture Capital funding, then you should consider incorporating in Delaware in the first instance.  In other situations, you may decide to form a California corporation, and if later you decide (or an investor requires) that you re-incorporate in Delaware, the process to re-incorporate is relative easy and generally not cost-prohibitive to accomplish.

 

 

For more information, please contact:

Derek Ridgway

925-746-8484 Direct Phone
925-746-8493 Fax

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