After carefully weighing the advantages and disadvantages of each business entity type, you’ve decided that sole proprietorship is not for you. Whether you’ve chosen to open a limited liability company (LLC) structure or one of the various types of corporations, you still have decisions to make. The next thing you need to consider is where to incorporate. While you have plenty of options available, the information below will help you identify the best states to incorporate in.
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If you are a small business owner with a storefront located in your hometown and no plans to expand into other regions, the answer to where to incorporate is pretty straightforward. The advantages to incorporating in another state may not be worth the investment of time and money.
Incorporating in your home state may be the simplest and smartest thing for you to do. But even mom-and-pop businesses will benefit from careful consideration of incorporating in a business-friendly state. Read on to learn the factors that need to be weighed.
Are you incorporating or forming a limited liability company for a small business with no intention of expanding beyond the borders of your home state? If so, then the most sensible option for you is probably to incorporate it in the state where you operate your business.
If you incorporate in your home state this will be a straightforward process, but if you incorporate in any other state you may be required to register as a foreign entity everywhere that you operate. This will entail additional expense and complication
Businesses looking for a tax-friendly state quickly find that Delaware, Nevada, and Wyoming are considered the most attractive options, though there are others that offer tax benefits. Here are the factors that bear consideration:
There are a few states that charge neither state corporate income taxes nor individual income tax. This represents a significant saving that may be worth the additional steps required to incorporate.
If your business operates and generates revenue in multiple states, then finding a state with low, business-friendly corporate tax collection makes a lot of sense.
In most cases, the states where you operate will only collect taxes on the revenue you generate within their borders, and in some cases only if your revenues exceed a certain percentage or volume. Careful selection of a state in which to incorporate can achieve significant savings.
If your business is seeking investment from venture capital firms or you’re vulnerable to frequent litigation, you will be well served by incorporating in a state where shareholders’ privacy is protected, where they don’t need to be residents of the state, and where their stock shares are not subject to the state’s individual income taxes.
Some states offer significant advantages in terms of their business laws and the way that corporate litigation is managed. Both Nevada and Delaware are noted for having the best business laws in the country.
In light of the factors listed above, there are a few business-friendly states that offer the greatest advantages for those looking to incorporate there. They are Delaware, Nevada, and Wyoming. Let’s look at each to see what makes them the best states to incorporate
Wyoming was the very first state in the country to offer individuals the opportunity to incorporate, and the state’s continued efforts at attracting corporations has resulted in the Tax Foundation’s State Business Tax Climate Index calling Wyoming “the most business-friendly tax system of any state” for ten years in a row.
Wyoming welcomes limited liability companies and corporations of all types, offering multiple options for how an entity is structured and several highly beneficial incentives and business-friendly laws.
Though the tax structure in Wyoming makes it a wonderful place to run a business, many of the advantages of incorporating there disappear when you are not a resident or operating your business locally. For those who live and operate in another state, it may not be the best choice.
The state of Nevada offers significant incorporation benefits. Companies seeking relief from taxation and regulation will pay high fees, but in exchange they escape paying almost any state taxes.
Though Nevada offers incorporating businesses many tax advantages, small businesses may find their tax savings are offset by extremely high registration fees, business licensing fees, officer filing fees, and more.
Additionally, recent changes in the state’s laws have meant that corporations with revenues over $4 million will be required to pay a corporate gross receipts tax, with no deductions allowed.
Check the financial records of nearly any big brand and you’re likely to find that they’re Delaware corporations. The state has a well-deserved and long-standing reputation for being the most corporate-friendly and investor-friendly in the country, offering tax advantages, flexibility, corporate laws written with businesses in mind, and a dedicated litigation system designed for speed and efficiency. It's no wonder it has proven so attractive to publicly traded companies.
Though Delaware is the most popular state for large organizations to incorporate in, the advantages realized by multi-million-dollar public companies may not be as beneficial for small or mid-sized businesses, which are not as likely to have need of the state’s business law advantages.
The state does charge a corporate income tax, and fees for incorporation can add up, though this depends upon your circumstances and needs. The state also charges a franchise tax based upon the value of corporate shares and requires that annual reports be filed. This is true even if annual reports have already been filed in the business’ home state.
As is true whenever incorporating in a state outside of where you conduct business, a new business incorporating in Delaware will also need to register within the states where they do business as foreign agents, apply for an employer identification number, and will need to pay all associated fees and state taxes.
Though Wyoming, Nevada, and Delaware are most frequently named as best states to incorporate in, there are others that offer notable advantages, including:
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?