Where To Incorporate Your New Business?
When you open your new business, one important question is “what state should I incorporate in?”. A lot of people choose to keep it simple by incorporating in their home state where they live and work, however you may incorporate in any state you want. There are some business friendly and low cost states that you may want to consider.
Filing and Annual Fees
When you form your corporation or LLC there is a one-time filing fee to the state’s secretary of state. Most states also charge an annual fee to maintain your corporation or LLC there. The filing fee depends on the state you choose to incorporate in. Filing fees start at $40 (Kentucky) and go up to $500 (Massachusetts and Illinois). Most states also have annual or biennial (every other year) fee.SEE FILING & ANNUAL FEES FOR EACH STATE →
Many states have a franchise tax, just for the privilege of being incorporated or registered to have a business in the state. Franchise taxes may be charged in place of, or even on top of, the annual filing fees and state income taxes. Nevada and Wyoming, however, have no franchise tax.
Business Friendly Courts
Hopefully your small business will not be involved in a complex legal issue, but Delaware has a separate court system to resolve business disputes that lets judges decide the outcome, not juries. This makes Delaware an inviting state to incorporate in.
State Corporate Income Tax
Nevada, Wyoming and South Dakota are 3 of the few states that have no state corporate income tax or state personal income tax. This is a big advantage, but only to a business based and operating in any of these 3 states.
Usually online businesses can incorporate in states that are the most business friendly such as Nevada and Delaware, since these businesses can sell to customers anywhere. Incorporating your online business in one of the states where taxes are low may save you money. If you have an online business it is best to talk to an accountant or attorney to get their recommendations.
Some states are business friendly; especially Nevada with no state corporate income taxes, franchise taxes and personal income taxes, and Delaware with flexible business laws. Both offer good incentives for businesses to incorporate there. However there are always extra fees, taxes, and paperwork in your home state that can outweigh the benefits. You may end up not saving any money in the long run. Your best advice is to simply incorporate in the state you live and work in.
Choosing your home state is the most popular option for many reasons, but Delaware and Nevada are the most popular choices for businesses that incorporate out of state.
- The Court of Chancery focuses solely on business law and uses judges instead of juries.
- For corporations, there is no state corporate income tax for companies that are formed in Delaware but do not transact business there (but there is a franchise tax).
- Taxation requirements are often favorable to companies with complex capitalization structures and/or a large number of authorized shares of stock.
- No personal income tax for non-residents.
- Members and managers of an LLC don’t need to be residents of Delaware.
- Shares owned by persons outside Delaware are not subject to Delaware taxes.
- No state corporate income tax and no fees on corporate shares.
- No personal income tax or any franchise tax for LLCs.
- Members and managers of an LLC don’t need to be residents of Nevada.