Bottom Line
Asset protection 101

Written for Land Line by Rick Bell of Harvard Business Services, Inc., a Delaware registered agent and incorporation service

Once you've decided to incorporate to protect your personal assets, in which state will you choose to formyour company? The simplest way to form a company is to file in your home state. Call your state's Division of Corporations and they will send you forms and a fee schedule. You may, however, incorporate in any state. Fees and laws are different from state to state and you should consider all pros and cons before choosing.

Once you select a state in which to file, you are subject to the laws of that state for the life of your company.

When deciding on a state, consider three factors

  • The corporate laws of the state
  • The fees and taxes in the state
  • The quality of service offered by the state

Eldridge T. Baynard, of Denton, MD, drove for 16 years before he incorporated. He formed his company in August of 1996, choosing Delaware. He has been happy with Delaware ever since. "One of the big reasons I incorporated in Delaware, was the convenience of it," said Baynard. "All I had to do was call in and everybody was nice and friendly and took the time to answer my questions. My company was done the same day. It's no big deal! Once a year you pay a hundred dollars and that's it. My agent takes care of everything for me."

A Registered Agent is a private company that helps you incorporate. The agent prepares all your documents and files your company. Some agents also offer other services such as mail forwarding and telephone answering services. These services can cost extra but they attract many owner-operators who are constantly on the road.

Many major corporations are incorporated in Delaware. Some that will be familiar to you are: Navistar, Freightliner, Flying J, Mack Trucks, Detroit Diesel, Comdata, Caterpillar and Cargill. Plenty of big transportation companies choose Delaware, too, including Schneider, Ryder, North American Van Lines, Bekins, Roadway Express, Landstar, CRST and Montgomery Tank Lines. Most of these companies have corporate lawyers on staff, but basically, they choose Delaware for the same reasons as thousands of independent operators.

Delaware seems to excel in every category, and is the recognized leader in corporation law. In fact, law students learn about Delaware's corporate laws, since they have set the standard for almost 200 years. Delaware has a high level of service. Delaware's Division of Corporations strives to be customer-friendly and service-oriented. Delaware is the only state that allows registered agents to work directly online with their office. That's why it takes only five to 10 minutes to form a Delaware corporation through an agent.

Delaware has low fees in comparison to many states. It costs only $50 per year franchise tax for a corporation with 3,000 shares or less. A Delaware Limited Liability Company pays a flat fee of only $100 per year. Compared to other tax-heavy states, Delaware's a bargain.

Delaware is tax-free in other ways, too. If you're forming your company there but not actually operating in Delaware you'll pay no corporate income tax, no inventory tax, no inheritance tax, and no sales tax. One common misconception is that Delaware companies pay less U.S. income tax, but that's not true. Regardless of what state you incorporate in you pay federal IRS taxes the same.

If you file in one state and do business in your home state, do you have to file in your home state, too? You must file as a foreign corporation in your home state. If you work out of your home in Kansas and you form a Delaware corporation, you'll have to register in Kansas as a "foreign" corporation. Some agents will handle this minor hassle for you at a fee, but it increases your costs. What is the cost? Some states charge more for filing as a foreign corporation, so you'll have to weigh out your advantages. If cost alone is your concern, it is less expensive to file in your home state.

So what is the best state in which to incorporate? You can choose your home state, or consider Delaware.

 If you would like further information contact Rick Bell at 800-345-2677 or visit their web site atwww.delawareinc.com.

Aug/Sept Digital Edition