If you have decided to incorporate, chances are good that one of your first considerations is where it would be best to file. Despite the fact that you can legally incorporate in any state, most people first think of three options: their home state, Nevada or Delaware.
Nevada and Delaware are popular choices right now for different reasons. Many businesses incorporate in Delaware because it has some of the most pro-business statutes available anywhere. The other popular choice is Nevada, which has a notable lack of state corporate income taxes, franchise and personal income taxes. The filing fees in the state of Nevada are also very low.
Despite these obvious advantages, most experts agree that as a rule of thumb a business should incorporate in the state where it has its physical presence. Plainly put, forming a corporation in another state unnecessarily complicates matters, a lot of matters. Say, for example, that you form a corporation in the state of Delaware, but your business is actually located in California. What many people might not realize when starting out is that their home state might have stringent rules governing the setting up of out of state accounts, so even if you have a local bank next door, you might find it very difficult to get a local bank account.
On the Other Hand
Each state has its own incentives and penalties for setting up shop on their turf. If despite all of this you decided you want to incorporate in a state other than where you are located, below as some guidelines for setting up a corporation in the best states and why.
Many experts list the state of South Dakota as the best place in the nation to start a corporation, and for good reason. Incorporating in South Dakota offers protection for owners of their personal assets from those seeking settlements for debts against the corporation. Filing fees are also very low.
A big advantage to forming a corporation in Wyoming is that there is no corporate or personal income taxes whatsoever. Owners in Wyoming must pay their federal taxes and that is all. Wyoming also has several big exemptions to sales taxes such as materials used in production and business to consumer transactions on gasoline.
Nevada is another state that many recommend highly for filing for incorporation. This is due primarily to the lack of corporate or individual income taxes. The state’s commitment to privacy as well as their permissive business laws are also very attractive.
Florida also ranks high for corporate filings since it has no personal income tax. Another advantage is the exemption the “S” corporations enjoy from income taxes.
Alaska is popular for filing of corporations due to the fact that there is no sales tax. Neither does the state have individual income tax.
There state of New Hampshire has no income tax on earned income. The only income tax that is enforced applies only to dividends and interests.
The state of Delaware, despite being one of the smallest, has a disproportionate number of corporations that call it home. This number stands at 850,000 at most recent count, mostly due to a lack of sales tax as well as a number of pro-corporation incentives.