Location is an important consideration when running a C corp. Whether the company is a startup or is expanding its operations, choosing a location is not something to decide on a whim. The place where a company does its business operations can help whether it succeeds or not. It will also determine its tax and reporting obligations.
Running a C Corp
Forming a C corporation is a great way to limit personal liability. That is because the company will be a separate legal business entity. So the owners, who are called shareholders, will not be held personally liable for the actions, debts, and obligations of the company.
Other advantages of the structure include the following:
- It has perpetual existence.
- There is a separation between company ownership and management.
- There are no restrictions on the number of shareholders.
- It is easy to transfer ownership of shares.
- It allows the company to issue stock and offer stock options.
How to Pick the Best Location
In order to enjoy the benefits of the C Corp structure, the company should complete a business formation process. That will depend on the state.
Contrary to what some entrepreneurs may think, a company does not have to incorporate in the state where they reside. Each state implements its own regulations on registered business entities. So, the requirements, responsibilities, and fees will vary. The opportunities may also be different. Some states may end up having more suitable business environments for a C corporation than others.
To help a company get started, here are some things to consider:
- Formation Fees – Starting a company comes with expenses. That starts with the business formation. Incorporation comes with the filing of formal paperwork with the governing state agency, and that includes the payment of corresponding fees.The cost of formation fees depends on the state. For some companies, especially startups, that is a huge consideration. However, this is a one-time fee. So, it may not have as much of an impact in the long-term.
- Annual Filing Fees – The obligations of a company do not end with the registration. It will have ongoing reporting requirements. In most states, that includes the filing of annual reports and payment of fees. Others require a biennial report, which is done every two years. The report will keep the state updated about any changes in the C corporation, such as its principal address, shareholders, and the number of stocks the company is authorized to issue. There are also states that do not require annual or biennial report filings, which can help a company save time and money.
- Tax Rates – The amount of taxes a C corporation has to pay can also play a huge role in determining which state is best for incorporation. A lot of companies look for a place that has lower tax rates. That is because it allows them to have more profits that could take care of their running costs.Generally, there are three types of taxes that a C Corp has to consider. These are the state income taxes, corporate taxes, and franchise taxes. Depending on the company’s activities, it may also need to pay for other types of taxes like sales and use, withholding, and unemployment insurance taxes.Some states, including Wyoming, Nevada, and South Dakota, do not impose state income and corporate taxes. However, it is important to note that these apply to those operating in these states. If the company operates in other states, it will be subject to those states’ taxation laws.
- Legal System – State laws governing business entities will also affect the experience of running a business there. For instance, Delaware is known for its good business laws. It has a Court of Chancery that hears corporate cases. Companies can expect quick and efficient handling of corporate cases.
Other Factors to Consider
Aside from the state, a C Corp should also consider other factors when picking for a business location. These include the following aspects related to the company:
- Financial Capacity
- Customer Demographics
- Potential Growth
- Foot Traffic
- Zoning Rules
Setting Up a C Corp
C Corps are established by registering with state authorities. In most cases, the business formation process includes the following steps:
- Select an appropriate company name. That means including a proper designator and ensuring that the corporate name is distinguishable.
- Designate the members of the board of directors.
- Appoint a registered agent in the state.
- File formal paperwork and pay corresponding fees.
- Draft the company’s bylaws.
- Create a stockholder agreement.
- Hold the initial organizational meeting.
- Get an Employer Identification Number (EIN) from the Internal Revenue Service (IRS).
- Obtain necessary business licenses and permits.
For a complete discussion on incorporation, check out our state-specific articles about forming a C corporation.
Companies should also comply with corporate laws specific to the state where it will incorporate. That includes certain obligations, such as tax and other reporting requirements.
Some entrepreneurs may find the whole business formation process and handling state compliance obligations hard to juggle with their other responsibilities. In such cases, a great option is to get help from a reliable third-party organization like DoMyLLC. Our team of experts can also serve as a registered agent. We are authorized in all 50 states and even in the District of Columbia. DoMyLLC also offers personalized solutions to make sure that the service that our client receives is suitable for their needs and circumstances.
Additionally, we can help ensure compliance with certain state obligations. Companies can also contact us and consult with an expert related to business entities.
Requirements may vary per state. That includes necessary paperwork filing, tax payment, and reporting obligations.
Aside from the factors related to the business entity structure and location laws, the company should also consider aspects specific to it. The opportunities may also be different per location. It is important to pick a state that is most suitable for the company’s activities and needs. This way, the C corp can focus on attaining success and business growth.
Business Filing Section