If you are an entrepreneur living in Arizona who forms an Arizona corporation for your web-based business, what happens when your wife’s company moves to New York? In New York, your corporation would be considered “foreign corporation” and you would have to qualify to do business in New York. After qualifying to do business in New York, you would then be responsible for New York and Arizona franchsie taxes, and you would also have to file tax returns in both states.
Traditionally, the options to avoid paying Arizona taxes and filing Arizona tax returns were to either dissolve the Arizona corporation and form a new corporation, or form a new corporation and merge the Arizona corporation into it. Although widely believed to be a simple matter of reincorporating in another state under Internal Revenue Code Section 368(a)(1)(F), until very recently, this was no simple process. In addition, the traditional method of forming a new corporation resulted in the inconvenience of a new FEIN, bank account, and other undesireable logistics.
Recent legislation in Delaware makes it possible for entities to convert to Delaware companies (without an inconvenient merger). On August 1, 2009, Sections 265 and 266 of the Delaware General Corporation law paved the way to easy reincorporations and even made it possible for one entity type to convert to another entity type (e.g., converting a LLC to a corporation).
The process is simple – to convert the Arizona corporation into a Delaware corporation, a Certificate of Conversion along with a Certificate of Incorporation is filed. Then, the Delaware corporation is qualified to do business in New York.
Although Delaware law is frequently praised for its well founded corporate law and low annual fees, the real benefit of Delaware for small business owners is mobility. Unlike any other state, forming a corporation in Delaware makes it simple to pick up the corporation and move to a new state. To move to Florida, for example, you would simply surrender the right to do business in New York and qualify to do business in Florida.
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