The term ‘Foreign Corporation‘ sometimes confuses people. Though it can also refer to a corporation from a different country, when business advisers refer to a Foreign Corporation or LLC, they are usually talking about a domestic company with permission to operate in a state other than the one the company was formed in. This permission is often called a ‘foreign qualification,’ and it effectively registers your company with the new state so the state can collect taxes. With it, you can open up another branch of your company, or move your base of operations, without changing states. But why would a business want to do that?
Why would you want a foreign qualification?
There are a few reasons why a business chooses to qualify as a foreign entity in other states. One of the main ones being that the company simply wants to expand its operations – sales could be strong in their home state, and they figure they’ll take a crack at opening another store or office in a neighboring state. Since you need permission to do business in another state, they pursue a foreign qualification. However, some business owners also believe that they may save money on taxes by forming a business in a state like Nevada or Delaware, and then qualifying in the state they actually do business in. There are pros and cons to incorporating in another state, so be sure to weigh your options carefully.
Nevada was born from the discovery of a major silver mine, and its reputation as a state where you can make it rich, and quick, has been well-earned. Home to Las Vegas, Nevada is known for being a place to gamble, and tourism remains its number-one industry. Of course, there is so much more to the ‘Silver State’ than the Las Vegas Strip. Nevada is still home to some of the most active precious-metal mines, and is a major ranching state.
The State Seal of Nevada
Nevada also has a reputation as being a tax haven – the Tax Foundation ranked Nevada as having the third most-business friendly tax laws of all fifty states. Naturally, we receive plenty of questions on how to take advantage of that lax-tax law. If you are considering whether you should incorporate in Nevada, take the following into consideration:
- A few forms are all you need to form a limited liability company or incorporate in Nevada. To help expedite the process, Nevada’s Secretary of State has set up ‘The Silver Flume‘ – an online business portal that allows entrepreneurs to register their business and set up a new business entity. The filing fee for corporations can fluctuate from the minimum of $75 depending on how many shares the corporation will be authorized to issue.
The advantages and disadvantages of incorporating in another state are hotly debated. We’ve seen a lot of other business-filing companies and services extol the virtues of incorporating in Nevada or Delaware, but the reality of the situation is a bit more nuanced. More often than not these other companies are trying to convince you of the need of their services and, while we could do the same, we want to actually help people, not just sell them something. For most businesses, incorporating outside of their home state isn’t a good idea. You have to contend with foreign qualification fees, regulations, licensing, and, to top it all off, the main state you do business in will probably still want to collect the same amount of taxes as they would if the business was formed in its borders. So the question inevitably shifts from ‘should you go to another state?’ to ‘in what cases would forming in another state be advantageous?’. Well, you’d typically want to form outside of your home state for the following reasons.
Welcome to our weekly Business Basics post! In case you missed last week’s entry to the series, we are dedicating every Tuesday to helping explain the facets and aspects of starting and running a business that typically get overlooked.
Initial and annual reports (also known in some states as Statements of Information), while not particularly glamorous, keep your business in good standing. Plus if you misfile them, or file them late, your corporation or LLC could be slammed with fees, or even dissolution. Two things that you clearly want to avoid. But what are these reports, and what are they supposed to say?