Where Is the Best State to Incorporate Your Business?
What is the best state in which to incorporate your business?
Many questions invariably arise throughout the process of incorporating or forming an LLC for your business. By far, one of the most common questions is…where? And more often than not, the question is framed as, “Should I incorporate in Delaware or Nevada?”
These two states are hot choices for incorporation, and for good reason. Many larger corporations choose Delaware because it offers some of the most developed, flexible and pro-business statutes in the country. And Nevada is increasingly becoming a popular choice for businesses due to its low filing fees, as well as the lack of state corporate income, franchise and personal income taxes.
However, as a general rule of thumb, if your corporation or LLC will have fewer than five shareholders or members (a condition which applies to the bulk of small businesses), it’s best to incorporate or form an LLC in the state where your business has a physical presence. This means the state where your business is physically located, where any property owned is located, where your employees reside and where the shareholders reside.
In other words, unless your business has a physical office in Delaware or Nevada, it’s much easier and less expensive in the long run to incorporate or form an LLC in your home state.
Here’s one example that highlights the situation. Suppose Susan owns a soap-making business in Maryland and is considering incorporating in Delaware. However, what Susan doesn’t realize is that Maryland has rather strong rules pertaining to bank accounts. As an “out of state” business, she would need to get permission in order to open a business bank account in Maryland (even though she lives right down the road from the bank). And opening a bank account in Delaware won’t be so easy, either, without any kind of physical address in the state.
That’s just one particular (albeit very common) logistical challenge. There are countless other potential hurdles, not to mention added fees.
For example, when a business incorporates “Out of State” (for instance, in Delaware), there may be additional filings and fees in both the state of incorporation as well as the state where the entrepreneur lives and runs the business. These can include:
For the state where a business incorporates:
- Appointing a Registered Agent in that state
- Paying filing fees in that state
- Filing annual reports in that state
And then, for the state of residence (where the business is physically located):
- Appointing a Registered Agent in this state
- Paying filing fees in this state
- Filing annual reports in this state
- Qualifying as a Foreign Corporation in this state
- Paying taxes in this state
I can’t overemphasize that last point, as it is a common misconception among many small business owners that I talk to. When you’re just starting out, the tax burden can seem overwhelming. It’s only natural to be concerned about your taxes, and certainly those tax laws in Nevada are incredibly appealing.
However, just because you incorporate your business in Nevada does not mean those are the only state tax laws that apply to your business. While Nevada may not charge state income taxes for your corporation, the state where your business is physically located will come after you for those taxes sooner or later. Adding insult to injury, your tax liability may actually increase because you’re viewed as a foreign entity operating in the state.
Pretty soon, any benefits from incorporating in Delaware or Nevada are diluted when you add in all the extra fees and paperwork of operating out of state. Don’t fall prey to the hype over these business-friendly states. The benefits are really limited to larger businesses (ones with more than five shareholders).
As a small business owner, you’re already contending with enough paperwork and fees as it is. Don’t add more to your workload by trying to operate out of state. In this case, the simplest route of incorporating in your home state turns out to be best.
About Nellie Akalp
Nellie Akalp is CEO of CorpNet, her second incorporation filing service based on her strong passion to assist small business owners and entrepreneurs in starting their business. Free guides, advice and videos on small business legal topics are available at her Small Biz Corner. 
It was definitely easiest for me to incorporate in Utah. They let you do most everything online and until I get bigger this will be just fine.
Nellie
Great article as Delaware and Nevada (for which I currently live) tout the advantages of filing here however they never seem to mention the disadvantages, especially for a small business. On the surface it seems like a great idea as filing fees are low, the tax structure is incredibly inviting until you delve into this and realize all that is involved with the paperwork for Nevada, the taxes as well as the local paperwork for the state in which you live.
It may cost more in the beginning to file in your own state but in the long run, adding in the time and the taxes, it is much more economical and just plain smart to file where you live.
@Robert – Congrats and I am happy to hear the process was easy for you and you did not run into any glitches; please feel free to reach out with any questions or if I can be of any assistance to you in any way and Good luck with your new company!
@Suzanne – Thank you so much for reading my post and you are on the money!!!! Reach with any questions at any time and let me know if I can assist in any way!
I organized my LLC in my home state of Indiana, and it was a snap. I could do it all online, and the costs were minimal. And just like Nellie said, I would advise that everyone check out what their state has to offer for small businesses before automatically going out of state.
Thank you for the article. We are an informal partnership right now, but we are starting to see sales and investments increase. So I am sure we could use some advice pretty soon ! Thanks again, b/c I had not thought about the hidden difficulties in incorporating in a different state.
Nellie,
Thanks for explaining the popularity of companies wanting to incorporate in Nevada, and Delaware.
I figured it was about the tax benefits, but you went even further into the reasons that some companies do it.
Of course, you can help those companies do just that, right?
The Franchise King®
@Henry – Thank you for reading my post and congrats on your new Indiana entity. Feel free to reach out with any questions or if I can help you out with your new business in any way!
@Todd – It’s my pleasure. Let me know if I can help out in any way when you’re ready to take the next step in legalizing your partnership; generally partnerships consider placing their partnership into an LLC when ready to take the next step; I would love to assist you in forming the LLC for you when and if you decided to go that route.
@Joel – HI Joel! How are you my friend?…You are absolutely correct, I can absolutely help
xo
Nellie
[...] the two best states to form an LLC are Nevada or Delaware because of their pro corporation laws [5]. This, however, is generally more expensive and time consuming than simply registering in the state [...]
[...] Where Is the Best State to Incorporate Your Business? [...]
Nellie Akalp: I see from your Twitter profile that @CorpNetNellie is located in Westlake Village, CA. How is it to incorporate a business in California?
@Martin: That is correct! Its super easy to incorporate a business in CA. Where are you located? And how can I help?
Hi Nelly,
I am in process of forming an LLC with my 2 brothers (one lives in Atlanta and one in Singapore) for software related consulting and training business.
After reading your article, we have abandon the idea of leveraging Delaware or Nevada. As we have residencies in NY,NJ and Georgia, which state would you recommend for us to register and operate an LLC which is less than 5 share holders and just getting started. Thanks
I see you’ve covered the paperwork and taxes component, but why did you ignore the asset protection aspect? This makes your argument for filing in your home state incomplete, yes?
[...] Where is the best place to start your business? You may have heard that, for lots reasons including taxes, there are places more friendly to businesses and that the best place to start or at least incorporate your business might be there instead of where you live. But incorporation expert Nellie Akalp warns against decisions based on just a few factors that can ignore the bigger picture. When deciding where to start your next venture, Nellie suggests that be it ever so humble, there’s no place like home. Small Business Trends [...]
@Pete – thanks for reading and commenting on my post! I have covered asset protection in a few other posts for Small Biz trends, so wanted to add some fresh content. You are very right though that asset protection is very important aspect of filing a Corporation or LLC. Thanks again for your comment and if I can ever assist in any way, do touch base! – Nellie
[...] *Original content written by Nellie Akalp for Small Business Trends [...]
But what about privacy? I do not like the idea of someone looking up my name in a State’s Division of Corporations and finding out my business. If I run a business from my home, then everyone in the world will know this. Delaware and Nevada, I believe, are private. Are there any others?
@Sher – I understand your concern however, if you file in a state other than the state where the business is located; you will be forced to foreign qualify your business in the state where you are transacting business and hence now subject to two states laws and regs…Here’s a quick video about the topic: http://www.youtube.com/corpnet#p/u/3/0SSZQV9Buog
Hi Nelly,
I am a non US resident from Sri Lanka. Recently I have come up with a requirement to set up a company in a foreign soil, due to the fact that my buyers in sri lanka want to invoice them directly in USD. So I thought of forming a LLC in Delaware after some research. But however there are still some questions unanswered.
01 Can I use the registered agent address as business address to open the bank accounts ?
02 Can I provide communication address as my local address in Sri Lanka for the bank account / my cousin’s address in Maryland (where he is a US resident) ?
03 Can I use my cousin’s address in Maryland for my company letterheads and invoices after forming the company ?
Please note that my company will not do business inside US , and 100% international business.
Hi Padmanath –
Here are answers to your questions above:
01 Can I use the registered agent address as business address to open the bank accounts ? No, the bank will not allow you to use the RA address as the biz address for the corp/LLC
02 Can I provide communication address as my local address in Sri Lanka for the bank account / my cousin’s address in Maryland (where he is a US resident) ? I do not see this as a problemJ
03 Can I use my cousin’s address in Maryland for my company letterheads and invoices after forming the company ? As long as it is ok with your cousin
- Nellie
Dear Nelly,
01 What would be your suggestion for the business address ? to use an additional address in Delaware state provided by the registered agent?/ To use my cousin’s Maryland Address ?/ my home address in Sri Lanka ?
02 Since I will be a non US resident, will I have to file the annual report for the Delaware LLC/ just pay the flat annual tax due by June ?
03 I have a partnership in Sri Lanka for my business, but going to open a single member LLC in US for the same operation. Do i have to reveal the local partnership details to form the Delaware LLC / can I directly open the fresh LLC and still qualify for the flat annual tax rate due by June ?
Thanks a lot for your previous answers
Hi Padmanath – Unfortunately I cannot give you legal advice so cannot answer your questions in detail. However, I can tell you that generally all all DE LLC’s are required to file annual reports in an annual basis for their LLC.
Hope that helps!
-Nellie
Wonderful Article Nellie. Is it better to incorporate in Wyoming than Nevada or Delaware? Thanks!
Thanks Jason for your kinds works and for reading my article Incorporating in Delaware. Forming a Nevada LLC, or Incorporating in Wyoming may make sense for large corporations or some small business owners concerned about “hiding assets.” For most small business owners, however, incorporating in your Home State usually makes the most sense…Please look at this link for more info and view my video: http://www.corpnet.com/incorporate/where-to-incorporate/ and then reach out to me if you are still unclear. – Nellie
Nellie,
Good article and some valuable information. My question is similar however, circumstances are different. I am transitioning from Georgia where I have my primary residence. Unfortunately, the economy is not favorable for a sell of our home so we are leasing it out. I am in New Mexico working on Govt Contract but want to become my own LLC, possibly to California. Where should I incorporate in this scenario if I need to get started (while still employed). Thanks… keep up the good work?
Hi Jeff – Where will you be residing and where will your principal place of business be located? Please provide me with the answers to my questions and I can provide you with some general guidelines as to what the state recommends… Thanks! – Nellie
Hi Nellie,
Currently, I live in Illinois and will be starting an Internet Marketing Company. I will be working from a virtual office in Chicago.
Right now, I am trying to figure if I should incorporate in Delaware on Nevada (offer the best protection?). As you know Illinois is not a pro busines state. Also, I will be moving within five years. These are some of the reasons why I am incorporating in Delaware and Nevada
Given the information above, do you have any suggestions or guidelines that I should follow.
Thanks,
Chuck
Hi Chuck –
Thank you for reading my article! As you may be aware, I cannot provide you with legal advice and providing you with a rec on which state to set up your company within would be considered legal advice.
That being said, I can offer some guidelines and options for you to consider in coming up with your decision. Both DE and NV are considered favorites in setting up a company; DE will have the greatest anonymity and few filing requirement and reneweal requirements. Also, please note, that if you do ultimately choose to proceed with DE, you may have to foreign qualify the company ion the state of IL if you decide to set up the bank account in IL…let me know if I can assist any further and possible help you in setting up the company or you.
Thanks!
Nellie
I already have a couple of corporations in my home state (NC). However, the business that I want to start can’t be done in my state. Peer -to-Peer lending is not legal in NC. I want to purchase loans from one of the companies that do peer-to-peer lending. I think that the only way to get involved is to open a corporation in one of the states where it is legal. Delaware is such a state. Every operational transaction can be done online. I’m still thinking about how to do the banking. Tell me some of the pitfalls that you see in my thinking. Maybe I missed something.
Hi Nellie!
Interesting article. What about the following scenario?
I am a US citizen living in Europe and am co-owner of a Swedish based company. For a variety of reasons, we need to have an American company registered (3PL and webshop requirements). I am originally from NC, but have not lived there or maintained a residence there for many years.
Would not Nevada (or Wyoming?) be the best choice for us? Again, we will be doing business via the web, with our company based in (and paying taxes in) Sweden.
Frnak
Hi Frank – Thanks so much for reading my post and commenting! I cannot give you specific legal advice for your situation, but you can find more information here about where you should incorporate your new business: http://bit.ly/MB8DwY – Nellie
Thanks Nellie-
I’ll check out the link.
All the best-
Frank
[...] most startups, that is overkill. We’re better off organizing or incorporating in the state the business is in. States like Delaware or Nevada do offer certain advantages, including flexible incorporation [...]
[...] to incorporate or organize under….For most startups, that is overkill. We’re better off organizing or incorporating in the state the business is in. …For startups, your biggest priority is to get your business off the ground. Keep it simple [...]
I am currently weighing the benefits of opening a LLC in Wyoming or Nevada. The main reason is to avoid the tax burden of my state of residence. If all goes well, my annual income would be in the high six figures. I am just starting my research into the overall consequecies of incorporating in Nevada or Wyoming and want to be sure I have accounted for both the pro’s and con’s. It seems that each state tells you why you should choose their state but no one mentions the down side, such as requiring a Register Agent,or how to open a bank account in the state of LLC incorpation that your state of residence can’t tax. Can you provide a website that goes into detail on how to avoid costly mistakes related to these subject matters?
Hi Jim –
Thank you for reading my post and commenting!
I’d love to help you with your question! Every state does require you to have a RA to form a LLC or incorporate and each state has a variety of other needs to comply with. I’m happy to chat with you about this issue and walk you through your options via my free business consultation.
Please call : 805.449.2638. Ask for myself or Amanda Beren directly and we will help you out!
Thanks again, Jim!
-Nellie Akalp
Delaware hold 50% of the worlds fortune 500 companies. It has some of the best tax treatments towards Corporations and is easy to get a bank account without ever stepping foot in the state. For me Delaware is the obvious answer. I incorporated my first business through this state and am more than happy with the results. The only complaint I have being a Delaware Resident I have to pay State Corporate Income tax as if I resided outside of the state I would not have to pay this.
ran across this durring research where I should form an LLC, I already have a corporation but starting a new small business with a new partner and our problem is, we live in Seattle, however our services take place a few times a year in California and we are paid for those services from a company in Boston.
So if we license in Seattle we would end up paying B&O tax here even though the work is not performed here.
any ideas?
Hi Richard – Thank you for reading and commenting on my post!
Generally speaking one should set up the company in the state where the majority of the business will take place, the office is located or the transactions take place. If you have additional questions, please feel free to call my co, Corpnet.com, for a free biz consult! Ask for Amanda and she will help you! 1.888.449.2638 – Nellie
[...] Sometimes it pays to keep it simple when you’re incorporating (and avoid some of the most common incorporation mistakes). Big corporations can often find certain shortcuts that are not available to smaller businesses. Often the simplest answer – the best state to incorporate in is your home state – the right one for your small business. For more details on this, read Nellie Akalp’s article on Small Business Trends on where is the “best state” to incorporate. [...]
Really helped to clarify options and the hype about Delaware and Nevada. Thanks!
Hi Nellie,
Great article and great insights. I have a few questions, I hope you can help with.
Started my own business this year with a friend. We incorporate in NJ, just because that is where we are from. We have operations in Maryland and Pennsylvania. We are looking to continually expand business into multiple states.
In your opinion, does it make sense to do Nevada or Delaware because we are in multiple states? Or should we re-incorporate to either MD or PA?
Thanks and I look forward to hearing from you.
Thank YOU for reading the post. In response to your inquiry:
Since your original state of incorporation and the headquarters are in NJ and you will be doing business in other states, generally speaking the process that you have to go by is called a Foreign Qualification whereby you FQ the business in the states that you will be transacting business within…in your case MD and PA. I would be more than happy to assist you the filing process. Please feel free to reach out to personally to Nakalp@corpnet.com and I will see to it that your filing gets taken care of and assist you with any further inquiries you may have.
I have also written an article on SMBT on this particular subject; here is the link: http://smallbiztrends.com/2012/06/small-business-properly-operate-out-of-state.html
This is the best advise I even seen so far. Wow, you saved me a lot of headaches and money. Everyone is saying come to Nevada, even Armando, the real estate guy is telling all of us to incorporate there and make millions? Well if you have millions, then you would not care. but I see that it make sense to incorporate in your state where you reside. Thanks for the Heads up. Can I call you for help in NY?
I am so glad that I was able to help and I am really happy to you get it. You will end up paying more in filing fees if you set up the business in any state other than where you are actually conducting your business. Definitely reach out to me as we can assist you in NY and in any other state. You can reach out to me directly at Nakalp@corpnet.com or simply to info@corpnet.com or can call direct to: 888-449-2638.
Best of luck and looking forward to assisting you!
Thanks for the information. I am forming an LLC and reside in California but we have a minimum tax rather we make income or not. Should I consider Nevada or Delaware?
Hi Mia – Thanks for reading and commenting on my post! I understand about the min tax requirements of a CA LLC, I have a CA LLC myself in CA. Unless you will be conducting business in NV or DE and will have a physical business location in any of those states, you should consider CA as if you file elsewhere, CA law will still apply and you will be required to pay taxes in CA. Feel free to reach out to me at info@corpnet.com for a free business consultation. – Nellie
Nellie – Great post, as always and particularly timely for me. One of the main reasons I always wanted to open my own web-based company was for the ability to be a bit nomadic and be able to retain employment no matter where I lived. However, this question of where and how to incorporate has challenged me. This is a great read as was your article on setting up shop in multiple states.
Jacob – thank you for the kind words and for reading my post! I would love to personally assist you in incorporating your business when you are ready. Feel free to email me direct at: nakalp@corpnet.com. Have a great weekend! Nellie
Hi Nellie,
what an article. Really loved your article and thorough knowledge you have provided by answering most of the obvious questions of readers.However, my questions are little bit more different:
1) Currently, I am a US (VA) resident and planning to leave the country in 2 months. I am planning to form an LLC in Nevada due to no tax filing benefit. I am planning to hire a company to do the formation and help me with RA etc. I will be working from my home country. My questions are as follows:- a) Can I work for my company being a non-resident in USA?
b) I have my personal Bank accounts in VA, Can I use them for my company transactions? If yes, will I be considered as doing business in VA?
c) Can I open an account in VA for my LLC?
d) Do you suggest opening the bank accounts in Nevada? If yes how can I open the account for my LLC when I am not a Nevada resident
e) If I do bank transaction using my personal or LLC bank account in VA, will I be liable to file taxes in VA?
Please let me know if you need more information
Hello! Thank you for reading my post and I am glad it helped you! I would love to assist you and think the best way to do so would be to call my company, Corpnet.com, for a free business consultation call. We can answer many of your questions and help you lead the way to a successful LLC formation! Here is the info: http://www.corpnet.com/start-a-business/free-business-consultation/
Thanks for the post. I was living in Maryland and had a corporation there, but it was difficult to attract customers and deal with the banks. The banks had no idea about international trade.
So I moved to New Jersey near New York City and incorporated in New Jersey. It has worked out great, but the idea of incorporating in Delaware always fascinated me. After reading your article, the answer became clear that there is no need for me to incorporate in Delaware.
Hi Suraj – Thank you for reading my post and commenting!! Appreciate the support and if you need assistance incorporating any new ventures, feel free to reach out! – Nellie
I have purchased a Corp in nevada, and now have a LLC in Md. how do I merge the two so thatI only have the LLC?