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NY versus WY or NV - is it really worth it (indemnification)?

Asked by: Chuck - 30 April, 2012
https://d25eic0jctudgb.cloudfront.net/images/site/avatars/789.jpg- I'm running two distinct businesses: (1) online sales of products I ship from NY and (2) income tax preparation services, from an office located in NY. I want to incorporate a single general business entity that I can run both businesses under. Is there anything compelling about Wyoming or Nevada, in terms of indemnification, that would make me want to incorporate in either of those states? I completely understand that there is ZERO tax benefits, since my nexus is in NY and I will be paying taxes to NY either way. I am more worried about a lawsuit from a customer - does that worry make it enough reason to incorporate in either WY or NV? If it's nominal then the extra overhead of registering a foreign corp in NY is probably not worth it. I was hoping to get some clarification on this point.
Answered by: Roman Fichman, Esq. - 3 May, 2012
https://d25eic0jctudgb.cloudfront.net/images/site/avatars/441.jpg-afd0fd6c303e291a6b8e74727d4f86a1 Chuck,

First, you noted that you will be running two "distinct businesses" under one entity. Generally, it is not recommended to run two distinct businesses under one entity. It complicates accounting, creates additional liabilities for the 'other' business, will prevent you from selling one of the businesses or even allowing a potential buyer to do meaningful due diligence without first untangling one from the other at a high cost.

Second, there is no advantage for a LLC, that is physically present in New York, to form itself in a different state. New York will still require you to register as a foreign entity and you will end up paying higher fees as a foreign entity. There are some advantages for corporations to form in other states and I recommend that you first consult a business attorney in the event this will be a corporation.

Third, since you are concerned about customers suing you, by being a Wyoming/Nevada company, keep in mind that a customer can file a lawsuit in Wyoming/Nevada and you will have to defend the lawsuit locally there. Are you ready to travel extensively to Wyoming in such event?

If you need help in the matter feel free to contact my office at your earliest convenience.

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