Where to Incorporate

So the entrepreneurial bug has bitten you, BEYOND being an independent contractor representative for a direct selling company. You want to own and operate your own direct selling company. Question: Where to incorporate? Answer: It does not matter.

Of course it matters. The answer in this brief article is very narrowly focused to mean: It does not matter with regard to the anti-pyramid laws and other laws specific to multi-level direct selling companies. What may matter to you and the other co-founders of the new company joining with you, are issues of corporate governance, required disclosures and privacy, tax consequences, costs to incorporate, costs to remain in good standing, reporting requirements and possibly other issues I have not thought of. But multi-level marketing specific laws will not be a factor. Where you choose to incorporate, even off-shore, will not change the fact that offering an income opportunity, with a multi-level form of compensation, to US residents subjects you to such laws, regardless of where you are incorporated.

My experience is this (and I do not form corporations for my clients) about half choose to incorporate in the state where their home office is located, and the other half choose to incorporate in Nevada. Over the last few decades Nevada has become the state of choice, over Delaware, for those choosing to incorporate in other than their home state. Wyoming wants some of that Nevada incorporation business, and has emerged lately as another choice to Nevada.

Why Nevada, or a state other than your home state? Two answers, both of which are non-answers. First, I do not know. Legal and financial (both tax and accounting) specialists in corporate structure and corporate governance do know, and stand ready to listen to the goals and needs of the co-founders of the new entity and advise on how a careful choice of the state of incorporation may meet those goals and needs. Second answer, and what I do know: It does not matter from the perspective of laws specific to multi-level direct selling. When you offer an income opportunity with multi-level compensation to the residents of any of our 50 states, the regulators in that state will expect compliance with their laws. They will not care if you are incorporated within their state, or in Nevada or elsewhere, or even off-shore.

My two cents worth on off-shore corporate entities. Such structures can be set up properly and legally in all respects. Such structures can meet the unique goals and needs of the co-founders. But such structures create no immunity from US laws applicable to the activities of offering income opportunities with multi-level compensation to the residents of the United States. From personal experience, if an Attorney General in the heartland does not like what you are doing, you better get in there and fix it. Laying back with an attitude of – “I have made it very difficult for that Agency to serve me a subpoena for documents, because I am in Belize,” is NOT recommended. The Agency may turn its guns on the lead distributors in their state, who may be very easy to find and serve. That is not a turn of events that will have a happy ending for anyone.

The decision of where to incorporate a new direct selling venture that will offer a multi-level form of compensation requires careful consideration. But from the perspective of an attorney focused almost solely on the unique laws specific to this business model – the location of incorporation does not matter. So give all the factors that do matter appropriate consideration, and choose, knowing that this multi-level legal expert will not second guess you.

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