Best States to Incorporate a Business

Best States to Incorporate a Business

Starting a business is fun, but it can also be a stressful and complex experience. If you’ve gotten to the stage of planning where you’ve chosen a business entity type—whether C-corporation or S-corporation—your next step is deciding where to incorporate your business.

You don’t have to live in the state where you incorporate your business, so that opens up over 50 options, but some states are actually better suited for incorporation in comparison to others.

6 Best States for Incorporating a Business

State Best For
  • Tax advantages
  • Legal system
  • No residency requirements
  • No corporate tax
  • Privacy measures
  • Overall flexibility
  • Lower taxes and fees
  • Tax advantages
  • No residency requirements
  • Tax benefits
  • Formation flexibility
  • Tax incentives and exemptions

When it comes down to it, knowing which states offer the best incentives and advantages for incorporating will help you decide where to incorporate your business. Some states have better legal systems for businesses, some have better tax options, and others have cheaper filing fees. 

Although it’s unlikely that one state can offer everything, depending on which benefits are the most important to you, you’ll be able to choose the best state to incorporate your business.

1. Delaware

There are many legal benefits to incorporating in Delaware, from the court system itself to taxes. Here’s a closer look into some of the reasons Delaware is one of the best states to incorporate your business.

The Court System

The Delaware Court of Chancery is set up so that if you find your business involved in any litigation, the judge presiding over your case has the expertise in corporate legal matters to efficiently oversee your case. 

There are also no juries involved in this court, so you’ll only be dealing with people with extensive knowledge of corporate law.

Flexible Structuring

Shareholders, directors, and officers don’t need to live in Delaware in order to be listed on your Delaware incorporation documents. 

The First State also only requires one person to hold the positions of director and shareholder, compared to other states that could require as many as three.

Extra Layer of Privacy

Not every business needs this extra layer, but it’s nice to have the option if you want it. In Delaware, formation documents don’t require the disclosure of office or director names.

Tax Advantages

If you form your business in Delaware, but don’t live in Delaware, your business is not subject to state corporate income tax, which is one of the main reasons businesses incorporate in the state. 

Stock shares owned by those outside the state are also not subject to Delaware taxes.

2. Wyoming

Wyoming is starting to gain real popularity among those looking to incorporate—and for good reason. The state offers tax advantages, privacy, asset protection, and much more. 

No Corporate Tax

There’s no catch to this: If you incorporate in Wyoming, you won’t have to pay corporate taxes. 

This is because Wyoming has one of the most healthy economies—and even works with a surplus—so the state doesn’t need to collect personal or corporate taxes.

Privacy Measures

As an S-Corp or C-Corp in Wyoming, you are required to report minimal information about the details of your business, and ownership is not kept in a public database—instead, it’s maintained privately by registered agents.

No Citizenship Requirements

This is an interesting one, and opens up a lot of doors for anyone who wants to form their business. You don’t have to be a U.S. citizen in order to incorporate in Wyoming, meaning you can live anywhere in the world and still operate your business in the state. 

That said, knowing about the Wyoming address and mail forwarding services can provide your business with a presence that will help legitimize your business in Wyoming even if you live in another country or are living in the U.S. on a visa.

Limited Filing Fees

Starting a business is expensive enough without having to pay exorbitant fees, and Wyoming helps new businesses with that. 

There is only a $100 initial filing fee for corporations in the state—$25 for nonprofit corporations. The only fee you’ll be expected to pay after incorporation is an annual report fee of $50.[1]

3. Alabama

Alabama is one of those states that may not be at the forefront of your mind for incorporating, but it should be. You’ll get benefits through low corporate taxes, low filing fees, and flexibility in the purpose of starting your business.

Low Corporate Tax

Although Wyoming technically has the “lowest” corporate tax, because they have none, Alabama has a relatively low corporate tax rate compared to other states. Corporations in the state will pay a flat corporate tax rate of 6.5%.[2]

Lower Filing Fees

Similarly, even though they don’t have the lowest filing fees in the country, what they do offer—in combination with all of the other advantages—still makes Alabama one of the best states in which to incorporate. 

The initial filing fee will cost you $100 in secretary of state fees, and a name reservation fee will only cost $25 or $28, depending on how you file.[3]

General Purpose Flexibility 

Normally when incorporating a business, you have to be very specific about the purpose of your business. However, in Alabama, you can state your purpose in general terms, meaning that your business can change over time without having to file any additional paperwork.

4. Ohio

If you’re going to start a business in Ohio, choosing to incorporate comes with tax incentives, financial assistance, and flexible profit distribution, among many advantages.

Ohio prides itself on offering programs and other incentives to bring new businesses to the state and add to the over 940,000 businesses already incorporated there. 

Tax Incentives

If you incorporate a new business in Ohio, you won’t have to pay state corporate income tax, inventory tax, or personal property tax. You can also take advantage of the Ohio Job Creation Tax Credit for even more tax benefits. 

If you choose to go with an S-corporation, you will also benefit from pass-through taxation.

Profit Distribution 

Those who incorporate in Ohio have a lot of flexibility when it comes to how profits are distributed. 

While the most common option is to divide them evenly, if you decide that approach is not the best for your business, you can specify in the operating agreement how those funds will be doled out. 

No Residency Requirements

A few other states have this, but if you choose to incorporate in Ohio—as an owner or director—you don’t have to actually live in Ohio.

Like Delaware, many choose to incorporate in Ohio over the state in which they live in because there are better benefits. 

5. South Dakota

South Dakota has become a hotspot for business incorporation due to the tax incentives and financing options. 

The type of business you form will determine which incentives you can take advantage of, but they are all good reasons to incorporate in South Dakota.

Tax Incentives

If you form an S-corporation or C-corporation in South Dakota, you get the benefit of no corporate income tax, no personal property tax, no personal income tax, no inheritance tax, and no business inventory tax. 

In addition, vehicles are also not subject to state and local sales taxes.

Flexible Business Purpose

Much like Alabama, businesses that incorporate in South Dakota can be as general as they want in their business purpose. 

For example, you can say you engage in any lawful business when you incorporate—that’s it—you don’t have to be more specific than that.

No Age Restrictions 

South Dakota doesn’t have any age minimums or maximums for owning a business in the state. 

Owners, directors, members, and managers are not limited based on age for C-Corps as well as LLCs.

6. Florida

Thinking about starting a business in Florida? This is a state that consistently ranks high on the list of best states to incorporate and for good reason. 

The biggest advantage of incorporating in Florida is all of the tax incentives and exemptions. 

Tax Incentives and Exemptions 

For limited partnerships and S-corporations, there is no corporate income tax in Florida. For all other corporations, the benefits are as follows:

  • Exemption of capital stock from corporate franchise tax
  • Exemption of business inventories from property tax
  • Exemption of goods-in-transit from property tax for 180 days
  • Exemption of goods produced or manufactured in Florida for international trade from sales and use tax

Businesses can also benefit from the exemption of sales and use tax on machinery and equipment for research and development. There are also tax refunds available for those businesses that create high-wage jobs. 

Final Thoughts

When it comes down to it, the best state to incorporate your business will depend on what’s most important to you—and what you’re looking for as you launch your new company.

That said, Delaware is often known as the best state to incorporate because of its legal system tailored to help corporations, lack of residency requirements, and tax advantages. Nevertheless, the other states on this list also provide plenty of benefits—so it’s always worth comparing and contrasting to decide what’s right for you.

Article Sources:

  1. Wyoming Secretary of State. “Business Fees.
  2. Alabama Department of Revenue. “Corporate Income Tax FAQ.
  3. Alabama Secretary of State. “Domestic Corporations.”

Jennifer Post

Jennifer Post is a freelance writer who has covered business topics including marketing, franchising, cybersecurity, health insurance, and hiring and retaining employees. She has also written about various finance topics such as startup funding, business bank accounts, retirement plans, and health insurance. Jennifer has specialized experience in social media management and knows the ins and outs of marketing a business through most social media platforms.

After briefly studying law at Widener University’s Delaware Law School, she went on to continue her small business writing career using her new legal knowledge to create content helping small businesses understand legal matters such as taxes, hiring and firing practices, harassment, and other company culture matters. You can find her work on Business.com, Business News Daily, and How Stuff Works.

Read Full Author Bio
Disclaimer
JustBusiness strives to keep information up-to-date but, at times, information may be different on a product or service provider’s website. Additionally, while we are compensated by some marketing partners, these partnerships do not influence our opinions of the products and services available to small businesses. All partner products and services are provided without warranty from JustBusiness. Please review a product or service provider’s terms and conditions when evaluating such products and services.