I started a website that is software as a service. Currently I am a solo founder, and have not incorporated the company yet. The website is now bringing in some revenue (about $360 in recurring subscription fees), and is growing slowly but surely. Each client pays $40 a month, and the goal is to increase the business to a $1,000/month, with the goal of $4,000/month in 6 months. I live in California and now I want to incorporate this business as an LLC. Any advice as to where?
The structure of your company is the foundation of your entity or in other words - it’s really important! Thus, solely relying on generic answers found online can be the beginning to the end of your new business. Business lawyers will easily identify potential blindspots particular to your company. With that said, the best state in which to incorporate is usually your own state. Although Delaware is typically thought of as the default state to set up shop, that notion really only applies to startups which plan on going public or seek VC.
Delaware has a strong grip over the incorporation landscape and is often an automatic default for new entities (and lawyers hired to assist in making the decision). Delaware’s Chancery Courts specialize in corporate law and do not require a jury. Delaware also offers C-corps, which do not tax royalties and other intangible assets. Lastly, Delaware corporate law protects the privacy of shareholder and director identities, and provides flexibility that favors directors and minority stockholders - all of which makes Delaware very attractive to VCs and companies planning to go public.
On the other hand, Delaware requires you to maintain a registered agent with a physical address in Delaware, which can add some expense. All Delaware corporations are required to pay annual franchise taxes too. Furthermore, Delaware has mandatory annual reporting requirements, which you’ll need to file in addition to those in your home state or states where you are doing business.
If you’re not planning to raise or go public, California will likely provide you with the most advantages and favorable business treatment. Also, as Brian spoke to already, California requires you to pay them an annual fee for doing business in the state so you’ll be paying fees to two states every year if you decide to incorporate in a foreign state.
If you’d like additional guidance about where and how to incorporate your company, please feel free to take a look at LawTrades (www.lawtrades.com). Also feel free to message me directly with any questions or concerns you might have about the incorporation process.