Forming a new business is a detailed undertaking–there is a lot to consider; a great many pieces to the puzzle. Some choices you make can be changed later with relative ease; others are foundational and long-lasting in their implications. Choosing the right state for your business is one of the latter. The state in which you incorporate affects the legal structure of your business, the cost of registering and maintaining incorporation, the level and kind of government support you will receive, and, of course, taxation. Unfortunately, there is no quick and easy guide to determine the best state for new businesses, but rather a number of key considerations based on your goals and long-term plan. Here we will help you navigate those decisions and determine the right state for your business.

Choosing a State of Incorporation: Things to Consider

The state in which you incorporate your business has a cascading effect on the course of your business’s life. State laws, regulations, and requirements in turn shape your business growth, development, and profitability, so taking these into consideration when choosing a state of incorporation is a critical process both for getting started and for the entire lifecycle of your business.

• The initial cost of incorporation/formation varies widely from state to state. Some states, like Wyoming, charge very low fees for incorporation or to maintain corporate standing. Others like California have high fees with a correspondingly complex fee structure. High-fee states may offer other benefits that override this issue, but the cost of incorporation is still an important consideration for a startup business or new franchise.
• State laws and regulations likewise vary widely across the US and the effect this has on your business greatly depends on the industry in which you operate, your long-term goals, and the logistical needs of your business. Emissions and other environmental regulations, land and property use laws, water use regulations, and the like may all figure into your decision as to which state is right for you and your business going forward.
• Administrative and registration requirements are often overlooked by entrepreneurs and startup owners, but they can cause real headaches down the line if neglected. Delaware is famous as a popular state of incorporation because the process of forming and maintaining good standing is relatively simple. States like Nevada and New Mexico offer similarly streamlined processes. Additionally, some states do not require formation information, articles of incorporation, or annual reports be made public. This can be an important consideration for some businesses and should be addressed up front. 
• Liability protection is another neglected consideration that could potentially lead to big problems down the road. State liability laws offer differing degrees of protection for business owners, separating personal assets and finances from liabilities and lawsuits associated with the business. Privacy and liability protection are particularly strong in Wyoming and Nevada, with other states offering some degree of protection as well.
• And finally, we reach the big one: taxation. State business tax rates and policies are widely disparate–Wyoming, Delaware, Georgia, and Nevada have relatively business-friendly tax situations while California and Illinois have much more robust business taxes and tax laws. As always, taxation depends on the nature of your particular business–its size, structure, and services–so advanced research is once again of vital importance.

Which State is Best for My Business?

So with all that having been said, which state is right for you? While every business is different, with varying needs and goals, the fact is that most small businesses, start-ups, and entrepreneurial efforts are probably best served by incorporating or organizing in the state in which you live. Forming an LLC in your state of residence greatly simplifies things, offering you access to local networks, local resources, and easier communication with the state offices that can answer your questions as you move forward. While starting a new business you have enough to do without adding the additional time and resource demands of an out of state incorporation, so most of the time sticking close to home is best.

Some businesses have different needs, however, either from the start or as they grow. As always, expert legal and business development advice is important at every stage to address your particular needs. But in general, if your business is involved in national or  international trade or shipping, if you have customers across the country or around the world, or if you are interested in connecting to larger corporate or transnational business networks, you may then be best served by incorporating in a state like Delaware, Texas, Nevada, or Wyoming. We will discuss those in part two of this blog, so stay tuned!