{"id":4827,"date":"2016-04-04T10:47:45","date_gmt":"2016-04-04T15:47:45","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/incorporation-and-legal-structures\/forming-a-corporation-where-to-incorporate.html"},"modified":"2024-07-02T14:28:37","modified_gmt":"2024-07-02T19:28:37","slug":"forming-a-corporation-where-to-incorporate","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/incorporation-and-legal-structures\/forming-a-corporation-where-to-incorporate.html","title":{"rendered":"Choosing a State To Incorporate Your Business In"},"content":{"rendered":"\n
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Choosing a State To Incorporate Your Business In<\/h1>\n
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\n By Jade Yeban, Esq.<\/a> | Legally reviewed by Aviana Cooper, Esq.<\/a>\n | Last updated\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

When you start a business, deciding where to incorporate is a big step. Your choice affects how you pay taxes, your business structure, and how you protect your personal assets. Businesses can be sole proprietorships, partnerships, or limited liability companies (LLCs). Or, you can have a C corporation (C corp) or nonprofit organization. <\/p>\r\n

Each type has different rules for things like tax returns, personal income tax, and liability protection. It’s essential to understand these differences to pick the best state to incorporate<\/a> your business.<\/p>\r\n

One of the first considerations after a new business decides to incorporate<\/a> is where to incorporate. For most small businesses, the answer may be as simple as registering in your business’s home state, but questions can arise if you conduct business in another state. Following is a discussion on where to incorporate your new business.<\/p>\r\n

Form your corporation with confidence with our trusted partner LegalZoom.<\/a><\/i><\/b><\/p>\r\n

Register in Your Home State<\/h2>\r\n

A standard rule of thumb for business owners is to incorporate<\/a> in the state where the corporation will do most of its business. This rule holds especially true for smaller businesses that will likely not expand significantly. It’s also considerable for businesses that do not foresee conducting business outside of their home state. Incorporating your business’s home state is usually the safest bet for your new business. <\/p>\r\n

When you incorporate<\/a>, you file articles of incorporation or articles of organization with your state’s office. This creates a business entity separate from you.<\/p>\r\n

Suppose your corporation has been running for some time, and you decide you may need to conduct business in another state. As a small business owner, you can always register in another state as a foreign corporation. Each state has its own legal requirements and registration procedures for new businesses. To learn more about incorporation in your state, see FindLaw’s Business Formation Resources<\/a> section. This section includes a state guide to incorporation laws<\/a>.<\/p>\r\n

Registering in Other States: Foreign Corporations<\/h2>\r\n

When a business that is incorporated in one state wishes to conduct business in a second state, the corporation is considered a "foreign" corporation and may need to register prior to doing business in the second state. For this, you’ll need both a registered agent in that state and to get a foreign qualification. This is extra work and cost but can be well worth it.<\/p>\r\n

Different states have different tax rates and rules. For example, some businesses are better for certain types of businesses, like a tech company or a nonprofit.<\/p>\r\n

Imagine that a registered New York corporation wishes to become authorized to do business in Connecticut. It will likely need to obtain a Certificate of Authority for Foreign Corporation from the Connecticut Secretary of State. Most states require that out-of-state corporations pay a filing fee in order to register as a foreign corporation. Remember, you may also have to pay taxes in your home state, too.<\/p>\r\n

The Lure of Incorporating in Delaware<\/h2>\r\n

Delaware is famous for businesses. Many large public corporations choose to incorporate their businesses in the state of Delaware<\/a>. Delaware’s corporation laws have been seen as friendly to business. Why? Delaware has flexible corporate laws, a court specific to business issues, and good privacy laws for business owners. It’s also easy to issue stock in Delaware, which is great for businesses planning to grow a lot.<\/p>\r\n

The state has a business-friendly state corporations code, low costs of incorporation, lenient information disclosure requirements, and corporation-friendly income tax laws for corporations operating in the state. However, Delaware has a franchise tax and its own corporate tax. If you’re a small business owner, think carefully about whether the benefits outweigh the costs and extra work.<\/p>\r\n

For smaller corporations, balancing against these positive factors is the simple fact that, unless your corporation is physically located in Delaware, it will still need to register for operation, and likely pay income taxes, in your home state. The additional cost and time required to do so will likely negate any benefit that your small business might gain from incorporating in Delaware. <\/p>\r\n

In addition, recent trends have seen many states altering their laws to appeal to businesses, so in the near future corporation-friendly laws like those in Delaware may become more the rule rather than the exception nationwide.<\/p>\r\n

Additional Considerations for Choosing Your State<\/h2>\r\n

Consider the following when deciding where to incorporate your business:<\/p>\r\n