Choosing a State of Business Formation
Once you have decided to form a legal entity, you must choose the state in which you will be incorporating or forming your LLC within. Let’s review some common options to consider when choosing a state of business formation.
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Benefits of Forming a Business in Your Home State
Generally, if you have a small business and are going to be conducting a substantial amount of your business in your home state, the general norm is to incorporate in your home state.
Simply Stated: Unless a business has a physical office in Delaware or Nevada, it’s easier and less expensive to form a business in your home state.
Where a business incorporates “Out of State” (like Delaware or Nevada), that business may be responsible for additional filings and fees such as:
- Appointing a Registered Agent in that state
- Paying Filing Fees in that state
- Filing Annual Reports in that state
Additionally, your corporation may be required to do the following:
- Appoint a Registered Agent in THIS state
- Pay Filing Fees in THIS state
- File Annual Reports in THIS state
- Qualify as a Foreign Corporation in THIS state
- Pay taxes in THIS state
Choosing an Alternate State to Incorporate
Most people choose Delaware, Nevada, or their home state. Starting a business in Delaware is often chosen, especially by larger companies, because it has the most developed and flexible corporate statutes in the country and is considered pro-business. Starting a business in Nevada has also become popular because of its lack of state corporate income tax, franchise tax, and personal income tax. It also has relatively low fees. California and Texas are also popular options for starting a business and CorpNet has a large customer base in these states.
Incorporating in Delaware
Delaware is a very popular state for incorporating a business. Many larger corporations choose Delaware because it has the most developed and flexible corporate statutes in the country and is considered pro-business.
Learn More: Incorporate in Delaware
Incorporating in Nevada
Nevada has also become very popular for incorporating a business:
- No State Corporate Income Tax
- No Franchise Tax
- No Personal Income Tax
- Low Filing Fees
Learn More: Incorporate in Nevada
Nevertheless, if you have a small business and are going to be conducting a substantial amount of your business in your home state, it will likely be beneficial to incorporate in that state. If you incorporate out-of-state but do much of your business in your home state, you may have to make a filing to “qualify to do business” in the state if there is a substantial ongoing business or physical presence in the state. You may then be subject to the same fees, taxes, and regulations as if you had incorporated there in the first place, and you will have paid filing fees (and, perhaps franchise taxes) to more than one state.