Top 3 Best States to
Start and Incorporate a Business
There are plenty of benefits to creating a separate business entity or corporation to run your business, from privacy to the protection of your assets. There are also additional benefits depending on where you form your corporation; some states are far more business friendly than others.
How to Register in a Business-Friendly State
Can you incorporate in a business-friendly state and live in another? Some states do not offer significant benefits to make this worth doing; however, in both Delaware and Nevada, you can incorporate and receive tax benefits without actually living or operating your business in that state. If your priority is to have the best possible tax setup for your business with minimal burdens and regulations, and you do not wish to relocate, you may want to consider incorporating your business in one of these states.
While each business is different, a few states stand out as excellent options for starting a business. Wyoming, Nevada, and Delaware are especially ideal for incorporating your business due to their business-friendly rules, enhanced privacy, and knowledgeable courts. Learning more about incorporating in each of these states can help you to make the best possible decisions about your business and ensure that you maximize your benefits when you incorporate.
Experienced and business-savvy court systems, tax benefits, and privacy protections make states like Nevada, Wyoming, and Delaware more business friendly and more likely to help you protect your hard-earned assets if you incorporate there.
Starting a business in Delaware
There are quite a few reasons that so many big brands are incorporated in Delaware, without actually having physical headquarters there. What makes Delaware so popular for businesses? For large companies, there are plenty of advantages.
Half of the Fortune 500 and publicly traded companies in the United States are incorporated in Delaware.
Benefits of Incorporating in Delaware
- Unsurpassed flexibility - The state of Delaware offers businesses a lot of flexibility when it comes to corporate and board structure, which makes it easier to set up your organization. Your officers and directors do not need to live in the state in order to serve your business. You also have the option to operate your business solo in Delaware, whereas other states may require at least three individuals to be directors and officers.
- Enhanced privacy - In Delaware, you do not need to disclose key details about your officers and directors when forming your business. If privacy is a concern, Delaware could be a good option for incorporation.
- An established and savvy court system - When it comes to corporate legal issues, Delaware uses judges rather than juries. When your case is heard, it will be before a judge with expertise in corporate law, not a jury made up of laypeople. With knowledgeable judges and attorneys, you are more likely to experience a fair, impartial, and streamlined process if you do end up in court.
- Attractive to investors - Many investors and banks show strong preferences for Delaware corporations. If you are looking for venture capital or are going public, incorporating in Delaware could give you an edge.
- Tax advantages - With Delaware’s business-friendly tax laws, there are clear financial benefits for corporations. If you incorporate in Delaware, but have your headquarters elsewhere, you will not have to pay state income tax.
Drawbacks of Incorporating in Delaware
- Not ideal for small businesses - Most of the benefits offered in Delaware are for large corporations with lots of shareholders, so small businesses may not be able to take advantage of those benefits at all.
- Added expense - If your business is too small to benefit from the corporate-friendly laws there, then the added expense and trouble of incorporating in Delaware might outweigh any extra advantages.
Starting a Business in Nevada
Nevada is considered a business-friendly state for a variety of reasons. If you are considering incorporating in Nevada, there are several key benefits you should be aware of, as well as some potential drawbacks.
One of the major draws attracting businesses to Nevada is the lack of corporate income tax or franchise tax.
Benefits of Incorporating in Nevada
- Foreign entity registration – You can form a corporation in Nevada even if you do not live there or intend to run your business in the state by registering as a foreign entity. Many businesses take this approach, incorporating in Nevada and then operating in another state, whether it be the business owner's home state or another location.
- No state taxes – For most individuals, the most important benefit of choosing Nevada is the wide range of freedom from state taxes. When you incorporate in Nevada, you will not have to pay the typical state-levied taxes such as corporate income tax, unitary tax, estate tax, gift tax, personal income tax, franchise tax on your income, or admissions tax. However, if you have formed a corporation in Nevada and live somewhere else, you may have to pay taxes to that state. Your accountant can help you determine the best setup for you.
- Enhanced privacy – If privacy is a concern, then Nevada may be an ideal match for your corporation. Unlike almost all other states, Nevada does not require you to list the names of directors in order to incorporate. You, your investors, and other interested parties can remain anonymous if you incorporate in Nevada. An attorney can handle all of your details and be named as the person of record for your business.
- Heightened asset protection – When you incorporate in Nevada, any liability your business incurs is kept with the corporation. While incorporation in any state protects you against most liability, other states have loopholes that could cause you to be held responsible for damages caused by your corporation. You are also not required to list your company corporate assets for the state—only for the Federal Government. This anonymity further protects your privacy and your assets when you incorporate in Nevada.
Drawbacks of Incorporating in Nevada
- High fees – Most of the benefits offered in Delaware are for large corporations with lots of shareholders, so small businesses may not be able to take advantage of those benefits at all.
- Stigma – There may be a stigma attached to forming your business in Nevada. Some view corporations formed in Nevada, but operated elsewhere, as illicit or having illegitimate goals. Much of this is due to the fact that businesses formed in Las Vegas and other Nevada cities have been presented in a poor light in various movies and television shows. While most businesses in the state are started and run above board, the stigma remains.
Starting a Business in Wyoming
While Delaware and Nevada get all the press, there are also clear benefits to incorporating in business-friendly Wyoming. With a long history of providing ongoing economic incentives, Wyoming continues to be a haven for entrepreneurs and startups.
Wyoming was actually the first state in the country to allow individuals to form corporations; the state granted permission for limited liability companies in 1977.
Benefits of Incorporating in Wyoming
- Flexibility– How will you run your business? In Wyoming, you have several options. When you file your incorporation paperwork, you will need to identify the individuals who will be running your day-to-day operations.
- Business incentives– The state government in Wyoming offers several incentives to businesses that choose to incorporate there. There is no corporate state income tax or franchise tax for corporations and the annual report filing fee remains low at under $100 per year. In addition to these benefits, the state of Wyoming does not collect personal income tax and has a low sales tax at 4%; however, there are exceptions for manufacturing equipment and similar purchases. All of these benefits make Wyoming attractive to corporations and can help save you money if you choose to incorporate there.
Drawbacks of Incorporating in Wyoming
- Fewer benefits for remote businesses– Wyoming has advantages for those who own businesses and live in the state, but if you wish to live elsewhere, you may not get much benefit from launching your business here. Most tax and other benefits are for businesses operating within the state, so you would be better off launching a remote business in Delaware or Nevada instead.
Should I Form in My Own State?
There are many factors to consider when making your decision about where to incorporate your business. While Nevada, Delaware, and Wyoming each have their advantages, there are also various reasons you might choose to incorporate your business in your home state.
Why not go with what you know?
Each business is different and there is not just one state that is best for incorporation in all situations. In fact, it is quite possible that you will find incorporating in your home state to be the most advantageous choice. Here are some things to keep in mind if you are considering incorporating your business in your own state.
- Convenience – It could be simpler for you to incorporate, operate your business, and live in the same state. For example, you might already have a familiarity and understanding of your tax obligations and local court system or have established local connections. Additionally, any relevant government offices you need to communicate with will be located within your state, which can also add to the convenience factor.
- Business name – When incorporating your business, you will need to ensure that the name of your business is available in that state and meets state-specific requirements. If you have already completed this process in your own state, incorporating there can save you an extra step as well as the possibility of needing to change your business name.
- Fees & taxes – Business startup costs and annual fees vary from state to state, so incorporating in your home state could make more financial sense if, for example, you have a smaller business with a few private investors or if you live in a state with lower fees. Since each state has its own fee structure, it is important to know what your state’s incorporation fees and tax situation would be if you incorporate there. It is possible that the most beneficial situation for your business is to incorporate locally, depending on where you live.
- Foreign entity registration – Depending on whether your business activities qualify as “doing business” in more than one state, you may need to register as a foreign entity should you choose to form your corporation in a state that you do not live or operate your business in. This is an extra step and expense that you will need to evaluate for your needs and preferences.
If you choose to start your business in one of these business-friendly states, but you do not plan to move or run your business there, you will need to ensure that you take all the proper steps and that all of the necessary legal paperwork is in place. The following are a few of the main issues to keep in mind when forming in another state.
- After you have chosen the entity type that is right for your business, you will either file articles of organization (if you have chosen to form an LLC) or articles of incorporation in your chosen state. You will also need to apply for your federal EIN (employer identification number) for tax purposes, if you do not already have one.
- Since you will be doing business outside your state of formation, you will need to register in your own state (or any other state where you qualify as “doing business”) as a foreign entity. Each state has its own application and the exact requirements may vary, so be sure that you follow the instructions for foreign entity registration in the applicable state.
- Be sure that you understand your tax obligations in your home state (as a foreign entity) as well as those in your formation state. These will also vary from state to state and depending on your business entity type.
How To Register Your Business
Starting a new business can seem like a complicated and overwhelming process. There is a lot of paperwork involved and many steps to complete. It is also essential that your business has all of the correct documentation in order or you could run into serious legal issues down the line. However, we at LegalNature are here to help simplify this process for you and we offer everything you need to ensure that you have all of the legally required documents to begin operating your business. Our business formation service can help you with everything from licensing and permits to registered agent services.