A Hypothetical Situation

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j jay

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Jan 7, 2002, 5:01:59 PM1/7/02
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Assume that a certain company is to be headquartered in a certain state (say
Alabama) where the founderlives, but wants to incorporate (as a c-corp or an
LLC) in Delaware, and that most of its target customers are in New York
city. Now, according to my understanding, this company will have to pay
filing fees and annual franchise taxes in DE, where it is incorporated, and
pay filing fees in both AL and NY as a foreign corporation (any franchise
taxes there?). Now what about corporate income taxes? Are they due in all
three states? And are they due in each state only on the transactions made
in that state?

Finally, is incorporating in DE worth all that trouble for a start-up?

Regards


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McGyver

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Jan 7, 2002, 7:38:19 PM1/7/02
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Incorporation is Delaware is preferred by large companies and publicly
traded companies for two reasons. First, the law is friendly to management.
That's important in a situation where there will be thousands of
stockholders, or where dissention between stockholders and management is
anticipated. Second, Delaware is by far the most sophisticated state in
terms of development of corporate law and the expertise of the judges in
matters of business an corporate law. You can be confident that if you end
up in a dispute about a convertible subordinated debenture or whatever, the
Delaware judges will know what you're talking about.

Incorporating in Nevada is becoming increasingly popular for three reasons.
First, incorporating costs are low. Second, there are some unusual secrecy
possibilities that are important only if it is important that the names of
the officers and directors not become a public record. Third, there is no
corporate income tax. There are other states which don't have a corporate
income tax, and which are changing their rules to attract incorporations. I
don't know anything about Alabama or New York in that regard.

For start up businesses which won't have many stockholders and won't be
publicly traded, incorporation should almost always be done in the state
where the business will be conducted. If you are going to do business
almost exclusively in NY, that's probably the best place to incorporate.
The reason is not a big deal, it's just that this minimizes the annual
paperwork that needs to be done to maintain it. If you are going to do
business in multiple states, chose any management friendly state with no
corporate income tax. There is no need to incorporate in or qualify in the
state of residence of the owner if business is not being conducted there.
The state of residence is irrelevant.

In any state where business will be conducted, other than the state of
incorporation, you will have to file for qualification as a "foreign"
corporation. There are costs for that, but it's important that you do it if
there is any possibility that the corporation might sue somebody in, or be
sued in, that state.

Corporate income taxes are not doubled or tripled, no matter how many states
you qualify in. Any out-of-state income taxes paid are credited in the
other state, provided you follow all of the rules about which state to pay
first, etc. That's an accounting question, which I don't pretend to know
anything about.

The state of incorporation is easy to change.

McGvyer
http://www.DavidPhipps.com

"j jay" <new...@hotmail.com> wrote in message
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Alexander Hay

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Jan 8, 2002, 10:30:36 AM1/8/02
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An interesting question. Everyone seems to think that forming a corporation in
Delaware is some kind of magic bullet. In reality, unless you are a very large
organization, OR HAVE VERY SPECIAL NEEDS, Delaware is just another state, and
forming a company there only results in added costs and expenses.

Now the question about how to structure the company, versus where to structure
the company, is more interesting. I assume you live in Alabama. And your
clientele is in New York. Just because you have clients in New York, does not
mean you are "doing business" in New York. That will depend upon a somewhat
complicated formula concerning your connections to the state. But it can be
boiled down to a common sense approach. Are you doing the work in NY? If so
you will have to pay taxes on the income that is "derived" from NY. Again a
sticky question with lots of gray area.

The goal for such strategies is to locate the operation of your business, at
least in argument, in a state that has Zero or little state income taxes. NY is
not such a state. I am not sure about Alabama, but Texas, Nevada, Florida are
among the low tax states that come to mind.

Now let's get really out there. Can you "relocate" your business to another
country? Remain a humble employee? If so you may be able to locate your
business in a ZERO tax situation that will reduce your taxes to close to
nothing.

These strategies require serious consideration, and often need to be tailored to
suit the needs of the individual's circumstances.

If you would like to chat with me about such concepts please feel free to call
me at 713.680.3033 during business hours.

GOOD LUCK!

Alexander J. Hay III, esq.

j jay wrote:

--
Alexander J. Hay III, esq.
Attorney at Law
Tel. (US): 713-680-3033
Fax. (US): 419-710-4339
email: alexan...@yahoo.com

This is a great way of getting a Cash Payment Card that accepts e-gold
and other methods of payments: http://www.cashcards.net/rep/30734/


j jay

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Jan 8, 2002, 7:50:42 PM1/8/02
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Thank you both. Plenty of interesting and helpful information in your
answers.


"McGyver" <Grey...@msn.com> wrote in message news:<a1df2n$pl5ol$1...@ID-75195.news.dfncis.de>...
> ....................There is no need to incorporate in or qualify in the


> state of residence of the owner if business is not being conducted there.
> The state of residence is irrelevant.
>

Actually, the situation is a little more complex than that, and I hope
you will forgive me for not making that clear in the first place. The
company is going to be an internet company, and when I referred to the
state of residence, I meant the state where the offices will be
located, the servers housed, and the employees working. In which case
I suppose it is inevitable to either incorporate in that state or
qualify as a foreign corporation.

Now that begs another question. My understanding is that internet
transactions are tax-exempt, except maybe in the state where the
company is incorporated (or is it headquartered? or present as a
foreign corporation?) Is that exemption only on the state ,or also on
the federal, level. And if both ends of the transaction are outside
the state of residence, but of course use the servers located there,
how do you define the actual place where the transaction took place
for tax purposes?

Kindest Regards

Alexander Hay

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Jan 9, 2002, 10:38:13 AM1/9/02
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I believe everyone is making this far too confusing. Depending upon the size and scope of your
transactions, simply having clients in a state does not necessarily mean you must "register" in
that state.

If you would like to chat with me, feel free to call me at 713.680.3033 during business hours.

Alexander J. Hay III
Attorney at Law

j jay wrote:

--

Paul A. Thomas

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Jan 9, 2002, 11:58:37 AM1/9/02
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j jay <new...@hotmail.com> wrote

> Now that begs another question. My understanding is that internet
> transactions are tax-exempt, except maybe in the state where the
> company is incorporated (or is it headquartered? or present as a
> foreign corporation?) Is that exemption only on the state ,or also on
> the federal, level. And if both ends of the transaction are outside
> the state of residence, but of course use the servers located there,
> how do you define the actual place where the transaction took place
> for tax purposes?


This "tax-exempt" internet business relates only to new taxes specifically
directed at internet transactions. States are prohibited from enacting tax
laws that are directed at e-commerce. They can however, enact tax laws that
are directed at all businesses and in that action, encompass e-businesses.
Of course, state laws only impact those individuals and businesses with
NEXUS in that state.

ALL OTHER TAXES APPLY THAT WOULD ALSO APPLY FOR A BRICK AND MORTAR BUSINESS.

So, sales tax would apply to all sales to a state in which you have NEXUS.
Income tax would apply to all states in which you have NEXUS. Payroll taxes
would apply for all states in which you have employees working. You need to
register in all states in which you have NEXUS. All federal taxes,
registrations, regulations, licensing, etc apply to your business. In short
you don't get any breaks because of how you conduct your business.

--
Paul A. Thomas, CPA
Athens, Georgia
tax...@negia.net
http://www.pat-cpa.com

Geometric Engineer

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Jan 16, 2002, 11:29:11 AM1/16/02
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BUMBLEBEE BUZZ:

Eh, eh? What's that?

Are you saying one could, for instance, form an LLC in Delaware, then
later decide that it's cooler to do business as a Nevada S-Corporation,
all presumably without dangerous drops in legal protection from greedy,
litigious doofuses waiting to pounce on unwary corporate officers?

- Mumbling Engineer, Seeking Clarification

"McGyver" <Grey...@msn.com> wrote in message news:<a1df2n$pl5ol$1...@ID-75195.news.dfncis.de>...
>

McGyver

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Jan 16, 2002, 2:12:05 PM1/16/02
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Yes. Exactly.

McGyver

"Geometric Engineer" <geo_en...@yahoo.com> wrote in message
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