Generally, you should consider the following factors before choosing a state of incorporation:
Where Will a Majority of Your Business Activities Take Place?
The simplest way to choose a state to incorporate your business is to incorporate in your home state, meaning the state in which you will be conducting a majority of your business or where your office will be located.
Note that if your business will be operating in more than one state, you may have to file additional documents in the other states in which you do business in order to be a registered business. You will also have to comply with the other state’s laws and regulations.
How Will Your Business Be Taxed in the State?
States have different laws regarding how LLCs, S-Corps, and C-Corps are taxed. It is important to determine what taxes you will owe based on the business structure you choose. Additionally, some states have specific taxes for different structures. You should fully understand the tax ramifications before choosing a state.
What Are the Incorporation and Ongoing Filing Requirements and Fees in the State?
Each state has its own requirements as to what documents must be filed and the fees associated with them. Additionally, each state has varying obligations regarding annual or bi-annual filings. For example, in New York, corporations and LLCs must file a biennial statement. However, other states such as Connecticut require annual statements to be filed.
Is the State “Business-friendly”?
Certain states such as New York and Delaware have reputations for being “business-friendly.” They are seen as having more favorable laws or courts that make it harder for potential creditors or activist investors to sue a company.
Delaware, for example, has a specific court set up to deal with business issues quickly and efficiently. There is also voluminous case law in Delaware dealing with business disputes that helps courts and business owners anticipate how a case may turn out.
If you are starting a business, consult with an attorney before incorporating it so that you choose the most advantageous state for your business. Our attorneys have extensive experience helping owners set up and operate their companies successfully. Contact us to learn how we can help you lay a strong foundation for your new business.