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Do you recommend doing foreign filing or incorporate new company in each state?

Date: 02/06/2008 | Category: Incorporation | Author: John Vanhara

Here is the question I got regarding situation when company starts doing business in multiple states.

I had a client call who wants to know which is better to do a foreign qualification of his NV corp into New York or just to incorporate all over again in New York, and have one pay the other. I said the usual, we aren’t accountants nor lawyers, but he just wants an opinion from someone who is going through it already. I explained that you are incorporating in each state you go to for EastBiz, but then the question of why came up. If you have a chance, can you give me a brief run down of why you are reincorporating instead of doing foreign qualifications? This is something that I am not really clear on.

This is a very good question and I have given it a lot of thought when making the same decision last year. Our company was growing from Nevada to Tennessee, and later to California.

The law requires that whenever your corporation starts doing business in other states (open office, hire employees) you have to register as a foreign corporation doing business in that state, or to set up a separate corporation in each state in which you do business.

State registration
There is not a big difference in state fees whether you open a new company for each state or get foreign qualification. Foreign qualification usually costs the same amount of money as setting up a new company. So we have to look at other issues.

Keep it simple
I like to keep everything simple. It saves time and money. Having multiple and separate companies means multiple bank accounts, multiple merchant accounts, separate QuickBooks account for each company … that means more bookkeeping and organizational time. Maybe it doesn’t look like a big deal, but once you have three or five companies you will see that it takes more money and time to keep everything well organized. Just think about having one bank account, one paypal account, one credit card and one merchant account for each company. The number of statements can get overwhelming. So here is the argument for keeping just one company.

Payroll issues
I love using the Paycycle payroll program. It costs just a few dollars per employee and a few clicks with the mouse to do payroll for my employees. Not only does it take only a few minutes to do payroll, but most state, federal reporting requirements and taxes also take just a few minutes to file. I cannot imagine using a different system, as this is a really huge time saver. Unfortunately, Paycycle doesn’t support multiple state employee situations very well. And this was one of my personal arguments that compelled me to use multiple companies.

Liability issues
Don’t have all eggs in one basket. When one of your companies owns all the assets, then if anything goes wrong (for example lawsuit) all your assets are at risk. If you have assets in multiple corporations then, you limit your exposure. If one company gets sued, only the assets of that company are at risk. This is a good argument if you own assets like real estate in each state. Having separate companies gives you less exposure.

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