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
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.
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.
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.
Stock shares owned by those outside the state are also not subject to Delaware taxes.
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.
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
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%.
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.
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.
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.
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.
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
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.
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
Owners, directors, members, and managers are not limited based on age for C-Corps as well as LLCs.
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.
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.