Questions

We've been building our product here in Kentucky. It is a cloud based service. We incorporated as a S chapter corporation. Now we are ready to take on investors. Should we dissolve the company here in Kentucky and setup a chapter C corporation in Delaware?

We answer this question quite often at www.LawTrades.com as Delaware does offer C-corps the greatest flexibility in terms of structuring boards of directors, stock issuance and preference, and voting rights. It also provides the broadest privacy protections. For instance, it doesn’t require director or officer names to be revealed on formation documents. For these reasons, many investors prefer companies that have been incorporated in Delaware as C-corps.

On the other hand, you’ll be required to file periodic reports in Delaware, in addition to the state where you do business. Moreover, Delaware requires that you regularly submit franchise taxes, even if you’re paying those taxes to the state/s in which you are already doing business.

Many companies don’t require C-corp status; in fact, incorporating as a C-corp for some companies could be detrimental to their overall financial interests. Filing as an LLC with subchapter S selection or some other type of entity that’s not a C-corp - especially when there’s no expectation of going public - is often best done in the state where the company is conducting business. Frankly, where you’re incorporated isn’t going to affect the decisions of most people, with the exception of perhaps investment bankers and investors who are considering a fast growth C-corp that is planning on a future IPO - high tech or otherwise.

If you’re a high tech startup with no reason or plans to go public, you should seek legal advice from a home state attorney to explore your in-state options.

Again, these are generalities and aren’t intended to provide specific legal advice or delve into the differences between the corporate laws of different states. I would, however, again emphasize that very often the state in which the business is located is often the best state in which to incorporate.

In you need further assistance incorporating your startup and evaluating in which state would be the best fit, please feel free to check out www.lawtrades.com. You can also message me directly and I’d be happy to answer any further questions you have regarding your company’s formation.


Answered 4 years ago

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