Deciding Which State To Incorporate A Business

After you decide to incorporate your business and choose a business structure, you need to decide which state to incorporate your business in. This means that, as part of the process of forming a legal entity for your business, you need to choose a state to incorporate in and which to make your filing in.

Many people want to know, “What is the best state state to incorporate a business?” Or “Can I save money on taxes by incorporating my business in a different state?”

State To Incorporate

Even though a business can be legally based in any state, even if that state is different from the owner’s state of residence, most business owners choose to incorporate in their own home state, or Delaware or Nevada.

Deciding Which State to Incorporate

Delaware is a popular state to incorporate in, especially for larger companies, because it has the most developed and flexible corporate statutes in the country and is widely considered to be a pro-business state.

Nevada has also become popular state to incorporate because of its lack of state corporate income tax, franchise tax and personal income tax. It also has relatively low fees.

However, most small business owners are likely better off incorporating in their own home state. If you are going to be conducting a substantial amount of your business in your home state, it will likely be beneficial to choose that state to incorporate in.

Even if you incorporate out-of-state, if you do a lot of business in your home state (and/or have a significant physical presence in your home state), you will have to make a filing to “qualify to do business” in your home state. You will then be subject to the same fees, taxes and regulations as if you had incorporated in your home state in the first place, and you will have paid filing fees (and, perhaps franchise taxes) to more than one state.

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.

If you’re operating a business in multiple states, then your incorporation and business filing requirements get a bit more complicated. For details, read this article from Small Business Trends on how to handle your business filings when doing business in multiple states.

The bottom line: If your business is like most small businesses, you should probably choose the state where you live as the state to incorporate.

While there can be benefits to incorporating out-of-state, those benefits usually are biggest for larger companies that have more complex tax filing and regulatory situations. Small business owners who do a majority of business in the same state should usually plan to “keep it simple” by incorporating in the same state where they reside.

If you’d like to find out which business structure is right for you and your small business, Take the quiz and find out now!

State Incorporation Photo via Shutterstock

6 Comments ▼

6 Reactions

  1. This is a very informative article and I learned a quite a bit. I have an online marketing blog and internet marketing consulting business and I’ve yet to decide on if I want to Inc. or LLC it. This article has provided me with some useful info that I’ll definitely be able to use as I make my decision. Thanks for sharing this info with the community. I appreciate it!

    Ti

    • I agree with you Ti. I’m starting my own online business too. It’s different from yours but the concept is the same (reaching out to a mass audience, etc.). What did you decide & for what reasons? All the best in your future endeavors!

  2. It’s a questions of whether you want to raise money for your business. If you want to raise money, the best bet is to organize the business in Delaware. Delaware is the defacto national standard and allows you to raise money from investors all over the country (even all over the world).

    If you do not plan to raise money, your home state may be perfectly fine.

  3. “After you decide to incorporate your business and choose a business structure,”

    Incorporate your business AND choose a business structure? isn’t a corporation a business structure? Redundant.

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