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Incorporating your business is the first major step toward legitimacy.
However, incorporating looks different in each state. As a result, there are clear winners when it comes to the best states to incorporate a business.
If you’re a business owner or professional and are trying to make informed tax, management, and liability decisions, this article will discuss the key reasons that make these states the best to incorporate.
By the end of this article, you can expect to become familiar with the 7 best states to incorporate your business in – backed by statistics.
Additionally, I will provide you with quick tips and common misconceptions to aid your incorporation decision-making process.
Let’s get started.
7 best states to start a business
Delaware is a fantastic state to incorporate in, sitting at position number one countrywide.
According to statistics provided by the Delaware government, approximately 2 million legal entities have chosen to incorporate in Delaware.
Additionally, almost 70% of all Fortune 500 organizations have chosen Delaware as their place of incorporation.
Delaware has a law (the General Corporation Law) that makes partaking in business formation easier and more flexible.
Additionally, the corporate legal community in Delaware is one of the best in the country.
Quick Tip: Head to the Delaware Division of Corporations to gain access to corporate professionals who will answer any questions that you have about incorporation in the state.
Nevada is also known to be one of the best states to incorporate your business in.
This is largely due to the fact that Nevada has no state corporate tax. In a similar vein, they do not impose a franchise tax on corporations or LLCs.
You’ll get your money’s worth in this state.
Misconception: Most states do not have a state corporate tax. This is false! In some states, corporate tax rates can approach 30%.
Next up: Wyoming. Wyoming is known for its favorable privacy laws, as well as its absence of taxes placed on businesses.
Wyoming also offers superior asset protection by allowing business owners to place shares in a Wyoming Trust.
If you’re considering incorporating in Wyoming, consulting with a legal group to determine if this is right for you may be beneficial.
If you decide to incorporate in WY, the process can be accomplished in as little as 24 hours.
Indiana provides a great financial landscape for up-and-coming businesses looking to incorporate.
Additionally, operating costs in the state of Indiana are significantly lower than in other states.
In fact, Indiana is number 13 in a ranking for the most business-friendly states and was number 1 in infrastructure in 2022.
Quick tip: You don’t need a proper business license to manage a business in Indiana unless you are operating in a few specific professions.
5. Rhode Island
Moving the discussion back to the East Coast, Rhode Island is a top choice for many business owners.
Rhode Island is in a prime location and has relatively low labor costs compared to its coastal counterparts (like New York, for example).
Rhode Island encouraged small businesses to form by initiating Small Business Capital Investment Tax Incentives.
Additionally, there is a small business loan program – so if you need capital to open a sushi restaurant, you may be able to gain a loan through the state.
Colorado offers superior asset protection (homes, savings, etc.) for business owners.
Another aspect to consider is that the workforce in Colorado is one of the most highly skilled in the entire country, so hiring there may provide better options.
Additionally, Colorado has very low taxes (compared to other states), making it a financially sensible choice to incorporate there.
Misconception: You have to live in Colorado to start a business there. False! Colorado only requires that you register with the Colorado Secretary of State.
7. North Dakota
Finally, North Dakota is a wonderful state to file for incorporation in. Businesses in North Dakota qualify for several tax exemptions on items like electricity, natural gas, and groceries.
Additionally, North Dakota provides several business incentives, such as the Opportunity Zones Incentive which gives businesses financial assistance if they make a long-term investment in lower-income communities.
How to Incorporate a Business in Another State
Incorporating a business in another state can require a lot of paperwork.
However, even if you do not reside in the desired state of incorporation, that does not necessarily mean that you can’t incorporate there.
Below are the most important items to consider when incorporating in another state:
- Decide where to register: This decision should align with the goals of your business and your business type. Depending on the type of business you intend to operate, you may benefit from incorporating in one state over another.
- Register within your chosen state: Next, register your business in your desired state. This process usually costs anywhere from $45-$300, with processing times dependent on the state that you’re registering in.
- Name a registered agent: A registered agent is someone who has witnessed the incorporation take place and can provide legal and legislative work on behalf of your business.
- File your articles of incorporation: Now it’s time to draft and file your articles of incorporation. Articles of incorporation are a portion of a legal document that acts as your business’ constitution. Information pertaining to the business name, address, employee names, financial disclosures, and more can be found in this document.
- Obtain an employer identification number: An EIN is assigned to every business for federal tax purposes. This is how the IRS accurately collects money and performs audits on your business over time.
- Write your corporate bylaws: Corporate bylaws are a list of rules that a corporation must draft in order to outline policies and procedures for directors and shareholders in a company. It is a document that is intended to keep everyone informed and accountable throughout the life of the organization.
- Establish a board of directors: Next, the shareholders of your company are required to choose the board of directors that will be responsible for protecting their interests with every business decision.
Quick Start – Use a business formation service
These services have helped to incorporate thousands of businesses in the United States and have curated procedures to follow for successful incorporation.
Which state should I incorporate my business in?
There is no direct answer to this question, as you should consult the goals of your business before deciding which state to incorporate in.
Rhode Island offers many benefits to residents and business owners, but Nevada has a superior tax structure.
You may even choose the state in which you currently live and operate in, which is a good option for convenience purposes.
Whatever you choose: as long as you are informed, you will be making the most suitable choice for your business.
In which state is it easiest to incorporate?
This has to be Delaware, as it is regarded as very welcoming to business formation. Also, the corporate laws in Delaware are simple to navigate.
Which states are the cheapest to incorporate?
Kentucky is the cheapest state to start a business in, as their registration fee is only $45.
What is the best state to run a small business?
The best state, depending on your circumstances, can be found in the list above.
Although Delaware is number one for business incorporation overall, other states offer protections and other benefits that may supply you with a better option.