Why Incorporate In California?

There has been a lot of promotion of the idea of incorporating in Delaware or in Nevada. but does that make sense? The answer really depends on the specific situation of the business.

In general, for a small business with only few shareholders, most of whom live in California and that has its offices in California, there is virtually no benefit to incorporating in any state other than California. What most people don't realize, until they have already done it, is that when you incorporate your California business in Nevada or Delaware, you not only have to pay a fee to the other state every year for the privilege of having a corporate existence, but you also have to pay fees to California to register the corporation as a foreign corporation doing business in California.

Another thing most people don't realize is that if your business is primarily in California and most of the shareholders are residents of California, then the California rules on such topics as directors, limitations on corporate distributions, shareholders, corporate transactions, corporate records, and rights of inspection all apply whether or not the rules of the other jurisdiction in which the corporation was formed would be more favorable. So you just don't get any benefit for incorporating out of state.

There are circumstances where a California based business would be better off incorporating in a state other than California, but those circumstances just don't exist for most of the small businesses operating in California.