What state should I form my LLC?

[rosenthal311]

My business partner and I are in the early stages of starting an informational website that would generate revenue via advertising. We are looking to incorporate and have received varying information about which state to incorporate in. One of us is currently living in Maryland, while the other is in New Jersey. Over the next 12 months we are looking to get office space in the New Jersey / New York area to help get our idea off the ground.

My question is, should we incorporate in New Jersey since it appears the majority of our business will eventually be conducted here or should we look to incorporate in a state like Delaware.

What are the advantages and disadvantages of both?

Any other company formation info would be appreciated (founders aggrements, other legal concerns etc).

Is this something to have a lawyer do or something we can do ourselves online.

Thanks

[SeasonEnds]

I would just avoid all the mumbo jumbo with where to start your llc and just do it where the majority of your business is located. This will make things easier in the long run.

You should be able to fill out everything easily. I personally wouldn't pay a lawyer to do it for me, but I have done the appropriate research. Make sure you know what you are getting yourself into! Good luck!

[BusinessAdviser]

I would just avoid all the mumbo jumbo with where to start your llc and just do it where the majority of your business is located. This will make things easier in the long run.

You should be able to fill out everything easily. I personally wouldn't pay a lawyer to do it for me, but I have done the appropriate research. Make sure you know what you are getting yourself into! Good luck!

Even when state laws differ significantly?

[GuyBBY]

Rosenthal-

Are you looking to be structured as an LLC? If so you technically file (not incorporate- that is for S and C corps) in any state...but with that come plus and minuses like anything else in life

First things first: You can file your articles on your own sure, many people do it and all it takes is just making sure you research the statues and any specifics regarding the law in the state you are filing, probably give a call to the Sec. of State's office there to leave no stone unturned, and file the appropriate forms and pay the appropriate fees. All state websites will have a Corporate Division regarding this...here you go for the three states mentioned in your post:

NJ: NJ Business Portal | Taking Care of Business | Limited Liability
DE: Delaware Division of Corporations - How to Incorporate in Delaware
MD: Maryland State Department of Assessments and Taxation

You should look around their sites to see what their specific laws may be, annual and one time filing fees, limitations or requirements, etc.

One can always find the advantages of forming in states with lower fees, better "perks", less paperwork, etc. However, what you should look into is your ability to protect yourself when you are doing business. More often than not, and basically a general rule, an LLC can sue or be sued in the jurisdiction/state in which they file. Therefore, if you wish to sue maybe in NY, but you are not filed there, the court may not uphold your request as you are registered to do business in another state. Also, you want to look at where most of your business is coming from and what that state's law is. If you file in NJ, and get a significant amount of sales revenue from NY, that state may wish, or require, you to get a foreign LLC filed with them, and to pay their state's income tax on the revenue made off of their state's business activity.

The basic and vital forms you will want to establish, other than those required to file with the state and the articles they have, are going to be an Operating Agreement and also some form of Equity Ledger.

The Operating agreement is not required to be filed with the state and is a contract/agreement with terms between all members. It will typically denote people's membership interests, their role, function, company policies such as what to do if you want to sell your interest, if you wish to hold a meeting, voting, share in gains/losses & profits/expenses, allocations and distributions, etc. This is the lifeblood of the "rules" of your company.

Also, you will want to keep an Equity Ledger that simply tracks the equity interests of members. People will gain or lose equity in some cases as the business develops so keeping track of this is good for the present, as well in future unforeseen circumstances you do not want to be doing guess work.

Want my personal advice for what I did...buy this book:

Amazon.com: Forming an LLC: In Any State (Book and CD-ROM) (Entrepreneur Magazine's Legal Guide): Michael Spadaccini: Books

This helped me and still does daily, guiding you on any possible LLC issue. It is put out by Entrepreneur Press (same as magazine) and written by a business law attorney. It has a CD with AWESOME template forms, including a long and short Operating Agreement, which you can tailor on your own to what you want, and then have a lawyer review (saving you lots of $$$). It has the ledgers, and about 50 other useful forms and templates for any situation in an LLC. I HIGHLY RECOMMEND IT TO ANYONE I SPEAK TO ON THESE TOPICS.

If you would like to discuss further, please feel free to PM me and we can talk via email.

Best

Guy

[SeasonEnds]

Even when state laws differ significantly?

Well, that is one disadvantage of the LLC. This form of business is relatively new and everyone i still trying to figure out how to handle it. If that is such a concern, then just go C-Corp.

I have never heard of drastic differences with LLC law in different states. I'm not saying they don't exist, I'm just saying that I am not aware of them. I mean, if the law is going to cause you to lose alot of money in one state and less money in another, then the choice should be obvious.

[GuyBBY]

Well, that is one disadvantage of the LLC. This form of business is relatively new and everyone i still trying to figure out how to handle it. If that is such a concern, then just go C-Corp.

I have never heard of drastic differences with LLC law in different states. I'm not saying they don't exist, I'm just saying that I am not aware of them. I mean, if the law is going to cause you to lose alot of money in one state and less money in another, then the choice should be obvious.

Rosenthal-

Again, I offer that you PM me if you would like to discuss specific LLC laws, state law/requirements/provisions, and for overall discussion about your specific situation.

Best

Guy

[BusinessAdviser]

More often than not, and basically a general rule, an LLC can sue or be sued in the jurisdiction/state in which they file. Therefore, if you wish to sue maybe in NY, but you are not filed there, the court may not uphold your request as you are registered to do business in another state.

Sorry, Guy, but that's just incorrect. An LLC submits itself to the jurisdiction of the state in which it registers. What this means is that the LLC can be sued in that state. However, it has nothing to do with where an LLC can sue. Anyone has the right to sue in any state court in the country, but the issue is whether the person whom they are suing is subject to the jurisdiction of that court. Thus, the only jurisdictional consideration when registering should be whether you want to be subject to the laws of that state, since anyone can sue you there.

[BusinessAdviser]

Well, that is one disadvantage of the LLC. This form of business is relatively new and everyone i still trying to figure out how to handle it. If that is such a concern, then just go C-Corp.

I have never heard of drastic differences with LLC law in different states. I'm not saying they don't exist, I'm just saying that I am not aware of them. I mean, if the law is going to cause you to lose alot of money in one state and less money in another, then the choice should be obvious.

One of the disadvantages? You mean "one of the advantages," don't you? Because you can file an LLC in any state (just like you can incorporate in any state), you can choose, based on tax, legal, and other considerations, the best state in which to file.

[GuyBBY]

Sorry, Guy, but that's just incorrect. An LLC submits itself to the jurisdiction of the state in which it registers. What this means is that the LLC can be sued in that state. However, it has nothing to do with where an LLC can sue. In your example, if you are otherwise able to file suit in NY but are not registered to do business there, you may still file suit there.

Thanks Click. I will provide you with the cited piece of information that lead me to have that take on it. I believe there is some stipulation regarding this but I cannot get to the document I have where I read it at this moment.

Reply soon...

[capforge]

you can file an LLC in any state (just like you can incorporate in any state), you can choose, based on tax, legal, and other considerations, the best state in which to file.

You can, but you will also have to register in the state in which you are actually conducting the business in as a foreign corporation, meaning you will have to pay for two tax returns, two sets of fees, etc.

Unless you have some overwhelming need to file outside the state you are doing business in (such as planning to go public or wanting to hide assets or information) it usually doesn't make any sense to do so.

[jasaunders]

I'm just going to say it. If you are going to be running some dinky website that is making money from ad revenue, just incoporate or file in the state you are located. I don't care what other people say, don't spend money on a lawyer, just do the research yourself and file in your own state. If your business grows and makes any money, at that point you can see a lawyer and get professional advice. If you file in Delaware, are you going to travel to Delaware if you get sued? Your business probably has a very low probability of being involved in litigation, so worry about getting the business running first before getting professional help. The correct answer is see a lawyer, the practical answer is do your homework and file locally.

[BusinessAdviser]

You can, but you will also have to register in the state in which you are actually conducting the business in as a foreign corporation.

Might this depend on the state's laws?

[ron komorowski]

I'm just going to say it. If you are going to be running some dinky website that is making money from ad revenue, just incoporate or file in the state you are located. I don't care what other people say, don't spend money on a lawyer, just do the research yourself and file in your own state. If your business grows and makes any money, at that point you can see a lawyer and get professional advice. If you file in Delaware, are you going to travel to Delaware if you get sued? Your business probably has a very low probability of being involved in litigation, so worry about getting the business running first before getting professional help. The correct answer is see a lawyer, the practical answer is do your homework and file locally.

Sounds like pretty good advice to me. I live in NJ. Besides the point, NJ is a VERY hard place to live and conduct business because it is so expensive.

Back to your question, I had some very sharp business advisors and potential partners out of NY/NJ. Everyone seems to say Delaware is best and many from here go there to set up but operate here because of lower corporate taxes. I don't know how that can work if your offices are located in another state....don't know much about that stuff but I know it matters.

One thing I know, different states will bend over backwards to help business. Virginia offered us a 1.5 million grant if we create 25 new jobs in two years. Texas offered us lots too.

Good luck!!!

Ron
Inventor of Handi-Straps
Handi Straps Lifting System Home

[SeasonEnds]

One of the disadvantages? You mean "one of the advantages," don't you? Because you can file an LLC in any state (just like you can incorporate in any state), you can choose, based on tax, legal, and other considerations, the best state in which to file.

Well, you can use it as an advantage, I'm just saying don't always expect everything to work out to your advantage as far as that is concerned.
What I meant is that LLC law is changing and may not always work out to your benefit. LLCs are new enough that there still really isn't alot of case law to determine how they should be treated in certain cases. If you start getting yourself into weird situations, like having a business in delaware but not operating the business in delaware... they might just make new case law starting with you!

Personally, I would rather just skip the bs and deal with my business where I am. So many people sit around and talk about what business entity they want to start that they forget to start the actual business!

I guess it can partially depend on your business and what you do, also.

[GuyBBY]

Sorry, Guy, but that's just incorrect. An LLC submits itself to the jurisdiction of the state in which it registers. What this means is that the LLC can be sued in that state. However, it has nothing to do with where an LLC can sue. Anyone has the right to sue in any state court in the country, but the issue is whether the person whom they are suing is subject to the jurisdiction of that court. Thus, the only jurisdictional consideration when registering should be whether you want to be subject to the laws of that state, since anyone can sue you there.

Just wanted to follow through on this:

From Forming an LLC in Any State by Michael Spadaccini
Chapter 6: Suing and Being Sued as an LLC
Pg. 78

"…If an LLC has a claim, it my file a lawsuit in its own name, thus becoming the plaintiff...the LLC may have to qualify as a foreign LLC in that state prior to filing its complaint."

Side note I guess on the same topic, regarding the LLC being sued, still pg 78:

"…These suits and proceedings can be filed in any jurisdiction where the LLC is either chartered or engaged in business regardless of where the LLC's principal place of business is located. Conversely, an LLC cannot be sued in a state where it is neither chartered nor engaged in business. This basic procedural protection shields the LLC from being sued in a place where it has no connection."

Just wanted to go back and clarify what I meant ClickMe…thanks for pointing that out though, for both the readers, as well as myself as I went back to review.

Best

Guy