After selecting the type of business you want to form, the next step is to select the best state to incorporate your business. A knowledgeable and experienced business attorney with Harrison Law, PLLC can help you understand all of your legal and financial options and make recommendations based on your particular situation. Consider contacting our legal team at (480) 320-2310 to schedule a confidential consultation.
Rules on Incorporation
Generally, businesses have multiple options to incorporate their business. They may be able to form their corporation or limited liability company (LLC) in the state where their business is physically located or where they will conduct most of their business. However, they may be able to incorporate their business in any other state. Corporation formation is usually governed by state law. Therefore, there may be different laws in different states regarding the formation and governance of the business.
In Arizona, corporations and limited liability companies are registered with the Arizona Corporation Commission. In most other states, a business is registered with the Secretary of State’s office in the state of registration.
Foreign Qualification
If a business conducts business outside of the state where they are incorporated, they will have to apply for foreign qualification. “Conducting business” may be defined differently in various states. Completing any of the following activities may subject a business to this requirement:
- Conducting transactions in the state above a specific amount
- Hiring one or more employees who reside in the state
- Purchasing real property in the state
- Opening a physical office or location in the state
- Offering services or selling products
- Applying for a professional license in the state
Most states do not require foreign registration if the business is only conducting e-commerce in the state.
Factors to Consider When Selecting the Best State to Incorporate
Here are some of the most important factors to consider when selecting the best state to incorporate:
Costs
The costs to register a business in one state may be very different than the costs in another state. There may be formation costs. There may also be ongoing costs, such as annual filing fees. Additionally, businesses will generally be required to have a resident agent for legal service and notifications. If they do not have a local agent, they may have to pay a company to provide this service.
Taxes
One of the biggest potential costs a business may have to pay is tax to do business there. Many states charge franchise or income tax to businesses registered in the state. Some states are more tax-friendly than other states.
Businesses can consider their expected annual revenue for the first few years and try to determine the amount they will pay in taxes for:
- Corporate income
- Personal income
- Franchise tax
- Corporate shares
The Tax Foundation summarizes corporate income taxes by state for 2022.
Corporate Laws
Another important consideration is whether the state of formation is corporate-friendly. Some states have a better reputation for being friendly toward corporations than others. Some states have streamlined procedures to deal with business disputes while others do not. States may also provide incentives such as tax benefits if they form their business in certain states.
Best States to Incorporate
An experienced business lawyer from Harrison Law, PLLC can discuss your company’s goals and make recommendations about the best state to incorporate give your specific set of facts and circumstances. Some popular options and the reasons they may be a good fit include:
Arizona
For the majority of our Arizona-based clients, we will recommend an Arizona corporation. Arizona corporate law has been well-established for decades and offers all of the corporate structures found in most states. For the majority of startup corporations, a Limited Liability Company (LLC) will be the best option. An Arizona LLC allows for the protection of a corporation without the fees, yearly reporting, and other requirements often found in other corporate structures or LLCs in other states. In addition, Arizona’s business-friendly environment does provide for a lower corporate tax structure and less regulation that is often seen in other states.
Delaware
Many businesses choose to incorporate in Delaware. Some of the reasons for this preference include:
- Many people consider Delaware as the state with the more favorable business laws in the United States
- Delaware has a corporate court system, known as the Court of Chancery that is highly specialized and helps to more effectively resolve business disputes
- There is no state corporate income tax formed in Delaware but do business elsewhere and no personal income tax for non-residents
- If a shareholder owns stock in Delaware, they are not subject to Delaware taxes
- Owners of limited liability companies can choose how their business is taxed
- Delaware offers more asset protection from creditors
Nevada
Nevada is also a popular choice for incorporating businesses. Some of the advantages of incorporating in Nevada are:
- There is no state corporate income tax, franchise tax for corporations or limited liability companies, or personal income tax in Nevada
- Nevada is a tax-friendly state for businesses, who do not have to pay various state-levied taxes, such as corporate income tax, estate tax, gift tax, personal income tax, franchise tax, or unitary tax
- There are no fees on corporate shares in Nevada
- Shareholders, directors, and officers do not have to reside in Nevada
- Nevada provides enhanced privacy protection by not requiring businesses to list the names of directors. Therefore, directors can remain anonymous. Additionally, the company does not have to list their corporate assets with the state.
- Nevada offers heightened asset protection and fewer loopholes to avoid personal liability than other states
Wyoming
As the birthplace of corporations in the United States, Wyoming is another business-friendly state that many business owners have chosen to incorporate their business. It has also provided various economic incentives that serve as a beacon for many startup companies. Wyoming offers greater flexibility for running a business and gives owners several options for running their business. Wyoming does not have franchise tax for corporations or corporate state income tax. There is no personal income tax in Wyoming, and it also has a low sales tax. Additionally, corporate maintenance fees are low at under $100 annually.
Contact Harrison Law, PLLC for Help Selecting the Best State to Incorporate
Selecting the best state to incorporate your business in can be a difficult undertaking. While you may have several options, the choice is important and can impact your business for years to come. A knowledgeable business attorney with Harrison Law, PLLC can offer recommendations based on your particular situation. Consider contacting our experienced legal team at (480) 320-2310 for your confidential consultation.
© 2022 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved
This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
