Hello all, we are in the process of forming a legal entity (LLC or Corp) but have run into a few problems. The answers we are getting seem to contradict other information so I was hoping someone could help us

Right now we will be offering webhosting, design and selling products all over the internet. No brick and mortar presence anywhere.

I live in New York and my partner lives in New Jersey

We would like to incorporate or llc in delaware b/c there wouldn't be corp taxes since we wouldn't maintain an office there and since their courts have a lot of precedance and predictability.

My first question is if we ship products from our houses, design sites from computers in out homes and set up accounts again from our home computers, does this constitute "doing business in new york and new jersey"?


Second question, in NY, you have to publicize the formation of an llc for 6 weeks, is this the case in delaware, i have not come across it anywhere

Third. if we incorporated and elected a subchapter S status for tax purposes, how is this different from an LLC, would there be any advantages to an LLC. We are only 2 partners, we will not have more than 75 for some time(one of the restrictions)

Fourth, if we formed "Generic Company Name, LLC" in DE, can someone then incorporate "Generic Company Name, Inc" in DE as well? (no that is not our company's name)

Lastly, does having a checking account in say New York constitute doing business in new york?



thank you all for your help,

You should NOT ask for this type of legal advice on a message board. At least make sure to double-check any answers you get here, with an attorney.

--Tina

Originally posted by AffordableHost
You should NOT ask for this type of legal advice on a message board. At least make sure to double-check any answers you get here, with an attorney.

--Tina

I am aware of that (thanks), I was hoping someone could point me to a website or a publication, or in the very least if they have heard something specific I would have something else to search for

The best thing to do is to attend business law (as an academic course/ non degree) in your local community college. :)

Originally posted by Synergy
The best thing to do is to attend business law (as an academic course/ non degree) in your local community college. :)

thats a good idea, thanks

Originally posted by Synergy
The best thing to do is to attend business law (as an academic course/ non degree) in your local community college. :)

Ouch! Just to incorporate? I wouldn't take out my own appendix, either. :D

Originally posted by George
My first question is if we ship products from our houses, design sites from computers in out homes and set up accounts again from our home computers, does this constitute "doing business in new york and new jersey"?
This is not a legal opinion, it's mine: probably so. Here's what the State of NY has to say: http://dos.state.ny.us/cnsl/do_bus.html

Reading that shows why Tina's advice to talk to a lawyer makes sense! :) Basically it says that there are no real laws explaining it; only case law and precedent. A lawyer would be able to find precedent that relates to your situation.

The thing is this: you have to be doing business somewhere. If you have no physical presence in Delaware and are shipping products from New York, answering business phone calls in New York, etc., you're doing business in New York -- where else could it be? Your business activity, to paraphrase the Counsel's office, has "a substantial nexus with the taxing jurisdiction."

Which is why you might reconsider incorporating in Delaware. The tax advantage isn't that great for a small business: you'll pay, as you say, no state corporate income tax, but you still (obviously) have to pay the larger federal income tax, you still have to pay a state franchise tax, you'll have to pay a "registered agent," and you'll probably have to register as a foreign corporation doing business in New York -- that takes a $225 fee.

Incorporation in Delaware often makes sense for large publicly held corporations for many reasons that aren't likely to affect you at all -- lenient statutes and a judiciary that might help fend off corporate raiders. Those corporations, too, generally put an actual corporate office there, so having that presence in the state makes it easier to isolate Delaware as the place of business for at least a portion of the corporation's activities. And, it's not a big financial strain for such a corporation to, for example, pay New York a $225 registration fee.

These days, in fact, both Wyoming and Nevada are often chosen over Delaware as states of incorporation by small or privately-held corporations. But you live in New York, which is also generally considered to be a pretty pro-corporate state and a good place to run a business -- while the fees do tend to be more than in those three popular states.

Third. if we incorporated and elected a subchapter S status for tax purposes, how is this different from an LLC, would there be any advantages to an LLC. We are only 2 partners, we will not have more than 75 for some time(one of the restrictions)
An LLC would still offer advantages of simplicity and less legal formality: no requirement for annual shareholder meetings, for example. Generally, transfer of ownership in whole or part is simpler. And it's easy to change stucture later if you decide someday to incorporate; it's much more difficult if you incorporate now to change your mind later. Incorporation, on the other hand, gives you some additional options as to raising capital, but it doesn't sound like that's one of the issues you're dealing with.

As for taxes by the way, an LLC can elect (through form 8832) to be taxed the same as a C corporation or as a partnership; as well as the more common option, passing through tax liability to the members.

Originally posted by JayC

An LLC would still offer advantages of simplicity and less legal formality: no requirement for annual shareholder meetings, for example. Generally, transfer of ownership in whole or part is simpler. And it's easy to change stucture later if you decide someday to incorporate; it's much more difficult if you incorporate now to change your mind later. Incorporation, on the other hand, gives you some additional options as to raising capital, but it doesn't sound like that's one of the issues you're dealing with.

As for taxes by the way, an LLC can elect (through form 8832) to be taxed the same as a C corporation or as a partnership; as well as the more common option, passing through tax liability to the members.

thanks, that was very helpful