Where Should I set up my Business?

north east city

Where should I set up my business?

Now that you have decided to form an LLC or Corporation, the next step is to determine to either set it up in your home state (physical location) or choose another state. This is a decision you should not make lightly or do it because "someone" said it was a good idea without investigating how it will effect you and your business specifically. 

For most small businesses there are two factors to considered when deciding where to form your LLC or Corporation: 

  • Cost of forming in your home state vs. the cost of forming in another state and foreign registering to do business in your home state. 
  • Taxation & Requirements of both states of registration.

1. Home state incorporation vs. foreign registration

If your business is owned by one or a couple members/shareholders and its primary business activity is conducted within your home state it is typically most efficient to register in your home state. This is usually more cost effective than registering your entity in another state and then registering as a foreign entity to do business in your home state. 

2. Requirements and taxation

Before registering in a foreign state it’s a good idea to research that state’s ongoing business requirements as well as general state taxation requirements. A company that foreign registers to do business in another state is subject to filing taxes and annual report fees in both states. 

Another factor to be aware of is the potential of litigation in each state you are registered to do business in.

So You Hired a Contractor? Now What?

girl on cell phone

Before (s)he Starts Work

Sign a Contract – A contract breaks down expectations on both parties, clearly states payments and milestones, and legally protects both parties should the relationship hit a snag. Your contractor may send you a contract. If she doesn’t, you should send her one. Even if you’re in a hurry to get started, a service like DocuSign can make this process very quick. Or if you’ve hired your freelancer through a marketplace like oDesk or eLance, rest assured that your contractor has already signed a contract with that service. Of course, even with those services, you may desire extra legal protection if your project is sensitive or out of the ordinary in some way. 

Fill out Form W-9 – If you pay your contractor more than $600 in the calendar year, you are required to send her a form 1099-MISC during tax time. (More about this later!) 

Download form W-9 from the IRS website, have your contractor fill it out, and keep it on file for tax time.

After the Work is complete

Give Feedback Where Appropriate – Your contractor is constantly honing her skills, so be sure to give her honest feedback about her work and the process of working with her. Professionals appreciate honest feedback. If the feedback is at all negative, of course, use your discretion and couch it in polite terms. 

Give a Testimonial – If you loved your contractor’s work, offer to give her a testimonial. She’ll be able to use this in your marketing materials and on her website so find more clients and stay in business for a long time to come. 

Give a Referral – Even better than a testimonial is a referral. If a contractor did a great job for you, she’ll likely do a great job for your friends. Don’t keep her to yourself! 

At Tax Time

Send Form 1099-MISC – As mentioned above, if you paid your contractor more than $600 within the calendar year, you must send her a form 1099-MISC at the end of the year. If you kept her form W-9 on file, you’ll have everything you need to send this document. Be sure to get it to her by the deadline, January 31st. Be sure to be timely. Failure to do so can lead to fines and penalties.