Natural Entrepreneur: State of Incorporation

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State of Incorporation

Where you form your business makes a difference

-- by Matt Benson, Cook, Little, Rosenblatt & Manson, p.l.l.c., Manchester, NH

One consideration for a new company is the jurisdiction where it should be formed. Even if the company is located in New Hampshire, it may be formed under the laws of another jurisdiction (most commonly Delaware).

In many circumstances, forming the entity in New Hampshire is the most appropriate. Unless there is a convincing reason to form in another jurisdiction (see below), forming as a New Hampshire entity will suffice, and be less expensive.

In general, the New Hampshire limited liability company statutes (RSA 304-C) and corporation statutes (RSA 293-A) are up-to-date and user friendly. In addition, forming an entity in New Hampshire for a business located in New Hampshire is less costly than forming the entity in another jurisdiction. When forming an entity in New Hampshire, the company must pay the appropriate filing fee (currently $100 for a corporation or a limited liability company), as well as an annual renewal fee (currently $100 per year).

The New Hampshire corporate statute also offer other advantages to forming a corporation New Hampshire. For example, New Hampshire permits a corporation to provide certain limits on the liability of corporate officers and directors, while Delaware only allows such limitations for corporate directors.

Despite the advantages of forming a New Hampshire-based company under the laws of New Hampshire, most public companies have traditionally been organized as Delaware corporations. Delaware has a substantial body of corporate law, both statutory and case law, dealing with public company issues. In addition, there are several corporate governance provisions under Delaware law that are beneficial.

Because of these factors, many institutional investors are more comfortable with a corporation formed under the laws of Delaware. Thus, an entrepreneur that anticipates receiving financing from institutional investors near term should strongly consider forming a Delaware corporation.

Despite certain advantages, an entrepreneur should keep in mind that forming an entity in Delaware is more expensive than forming an entity in New Hampshire. For example, if forming a corporation in Delaware, then the appropriate filing fee must be paid in Delaware (currently, $160), as well as a fee to the company (generally CT Corporation) that handles the Delaware filing. In addition, because the company is formed in Delaware but located elsewhere, the company must pay a Delaware-based company (again, often CT Corporation) to act as the new company’s registered agent in Delaware (approximately $200 per year), and must file as a foreign corporation in New Hampshire, and pay the applicable filing fee and the annual renewal fee (currently, $100 each). Finally, the company must pay an annual franchise tax in Delaware, that (depending on the circumstances) can be costly. Overall, forming as a Delaware corporation will cost at least several hundred dollars per year more than forming as a New Hampshire corporation.

This is the third in a series of articles on your decision of business formation entity.

Matthew Benson is an attorney with Cook, Little, Rosenblatt & Manson in Manchester, NH. He can be reached at (603) 621- 7115 or via email at mbenson@clrm.com

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