Time to Startup!

The BizFilings blog covering business tips and trends.

Selecting a State for Incorporation

Published on Nov 7, 2013

Summary

Read our article, 'Selecting a State for Incorporation' at 'Time to Start Up,' the small business blog by BizFilings.

stateWhen deciding whether to form a corporation or LLC, you should also consider options for the state in which you plan to incorporate. Cost, taxation and corporate laws vary from state to state, making some states advantageous for certain small business owners.

Choosing home or another state Incorporating a business in the state where your company is physically located is called home state incorporation. Whether your business is a C corporation, S corporation, LLC, LLP, LP or nonprofit corporation, you must pay filing fees to the state when incorporation documents are filed, and will be subject to ongoing requirements and fees imposed by that state. Some business owners mistakenly believe they can save money by incorporating in a state with low fees, even if their company is neither located nor conducts business in that particular state. Companies incorporated in one state but doing business in another state(s) must register to transact business in those state(s) through foreign qualification. Which state is best for you? When determining your company’s state of incorporation, research states’ corporate or LLC statutes to determine which is best for you.
  • Consider how corporations and LLCs are taxed by each state and the taxation requirements imposed on foreign-qualified businesses, if foreign qualification is necessary for your company. Does a state impose an income tax on corporations and LLCs? Does the state have a minimum tax or franchise tax?
  • The added costs of fulfilling taxation requirements imposed by the state of incorporation and state(s) of foreign qualification often outweigh the perceived benefits of incorporating outside the home state.
  • Try calculating your company’s projected revenue for its first few years of existence and then evaluate states in terms of taxes required, and try to determine which state presents an advantage.
For additional information regarding the best state of incorporation for your business, or to determine if you need to foreign qualify in another state, consider talking to an attorney.