#1 State to Incorporate Your Business (+ TRAPS to Avoid)

Why do companies incorporate in Delaware, Wyoming, or their home state?

That’s a question both citizens and non-US citizens alike have on their minds. And it’s a tough one as each state has unique perks.

This year, CNBC ranked Washington as the best state, based on 66 factors. But does that mean you should incorporate in Washington?

Absolutely not!

There are a few reasons for this, such as:

  • High taxes
  • Lots of regulation
  • Expensive cost of living

But it also brings in a huge amount of innovation and famous companies like Amazon and Starbucks started out there. So how do you make the decision? You can find out more about it by visiting https://mollaeilaw.com/start-us-business/

I’m going to show you exactly what the best state to incorporate in is if you are starting a US business for the first time. Contact me today at sam@mollaeilaw.com for more information about making the best decision, but in the meantime, I’m going to give you an insight into this debate.

The answer might surprise you…

What is the Best State to Incorporate in 2019?

The best state to incorporate in 2019 is your home state for most people. There is little to no reason not to.

The reason for this is that you can’t simply incorporate in a state and legally do business in any other state. Companies from another state are foreign companies.

That means the business permits and licenses you have in your own state aren’t valid in other states. So, if you wanted to start a business in California your permits wouldn’t be valid in Nevada or Arizona.

Your costs are going to rise exponentially if you must pay for two separate types of licenses, and that far outweighs the tax benefits of incorporating in a state like Wyoming or Delaware.

There are exceptions to this rule, which we will go into later. But in most cases, it is always best to incorporate in your home state.

What is the Best State to Incorporate an Online Business?

The best state to incorporate an online business is the state that best suits your type of business. You see, if you don’t have a physical presence, the information in the previous section is not relevant to you.

Think about it. No state can attempt to regulate an online business dealing privately across every state.

The rules above only apply to companies with a physical presence. This is why online businesses in Europe don’t need the business licenses and permits of every state to deliver to customers in the U.S.

For an online business, you have a variety of states you can choose from.

I’m going to show you some of the different states so you can choose the best state to incorporate in, and why there are only three states that make sense to incorporate in as an Internet business without a physical presence.

Best State to Incorporate – Delaware

Delaware has over one million businesses in the state and comes with business-friendly rules and relatively low taxes. Wondering if this is the best state to incorporate your business in?

Besides exploring in detail about it by visiting https //mollaeilaw.com/start-us-business/, here are the advantages and disadvantages of this popular choice you should know about:

The first advantage is that the Delaware court system is well-established and geared towards businesses. Expert judges with experience in dealing with business cases rule, rather than an unqualified jury.

It is considered to be the most business-friendly state for this reason.

You also have more options for structuring your LLC or corporation than in most other states. The directors and shareholders don’t need to have residency in Delaware.

Unlike other states, you can also have a single director, shareholder, and corporate officer, which can be the same person.

The various officers in a corporation can also be private. You don’t need to disclose your name or address in the formation documents.

Finally, Delaware does have corporate income tax, but if you are not actually doing business in Delaware, you don’t need to pay it.

But are there any disadvantages to forming in Delaware?

The disadvantage is that the franchise tax must be paid every year. You can’t avoid this. Compared to other states, it can be slightly higher.

For most companies incorporating in Delaware, though, the corporate income tax won’t exist as they won’t be doing business within Delaware anyway.

That is why I always advise my non-US clients and US clients doing online business to incorporate in Delaware. Ready to start your U.S. business? Get more information from https //mollaeilaw.com/start-us-business/ first.

If you want to find out more about the benefits of incorporating in Delaware, you should contact me today at sam@mollaeilaw.com.

Best State to Incorporate – Nevada

Nevada was once known as America’s tax haven, but all that has changed as of 2015. Therefore, I can no longer recommend incorporating in Nevada.

So, what has changed to dethrone Nevada as the tax haven of the US?

For a start, there is a brand-new commerce tax. This is only applicable to companies that earn over $4 million a year, so for most small and online businesses, it makes no real difference.

However, for everyone else, they will have to deal with an increase of $300 in annual business license fees, a $25 increase in all filing fees, and modest increases in sales taxes and business taxes.

Don’t get me wrong, Nevada is still more tax-efficient than most other states (no corporate income tax), but it is no longer comparable to a state like Delaware.

Business friendly laws are still in force and you can still take advantage of those, but they were never on par with those of Delaware.

In short, Nevada is still a great state for many types of businesses, but for everyone else, Delaware is a superior option.

Best State to Incorporate – Wyoming

Wyoming is another excellent state to incorporate in. However, many of the benefits just don’t measure up to Delaware.

The main benefit of incorporating in Wyoming is that you don’t have any form of corporate income tax. It has the second lowest tax burden of any state.

There is also no franchise tax, which is one of the main advantages over other tax-efficient states.
But Wyoming also does not come with specialized courts for dealing with business disputes, such as the courts of Delaware.

You are still protected against being sued, but to be safer, you should consider Delaware as the best state to incorporate.

You also have good news when it comes to the licenses and permits you need to operate in Wyoming. There is no requirement for a state business license.

That will save you hundreds of dollars and a lot of bureaucracy over the course of a few years.

In terms of establishing your business in the first place, Wyoming offers one of the best deals. It is cheap and quick to establish.

So, should you opt for Wyoming?

I advise against it unless you have a physical presence in Wyoming. The state doesn’t have any personal income tax, but unless you live there, you can’t take advantage of it.

What are Your Responsibilities if the Best State to Incorporate in is Not Your Home State?

The main responsibilities you will have due to not choosing the best state to incorporate will be a separate set of taxes and filing fees. Most tax haven states also have the requirement to have a registered agent within the state.

As I explained, in most cases, you should incorporate in the state where you have a real physical presence. But I also said that there are exceptions to this rule.

So, let’s say that you do decide to incorporate in Delaware, despite your physical presence in another state. What are your responsibilities in detail?

The main responsibility is that you will have to get business licenses and permits in two separate states. This means that you will be taking on significant extra expenses every year.

For most companies, this could add up to $500 onto your regular filing fees. If you are a specialist type of business, this figure may very well be higher.

You also need to keep in mind that just because you have a Delaware C Corp or LLC doesn’t mean that you don’t have to pay corporate income taxes.

Always remember the quote, “Taxes are taken where money is made.”

In other words, a Delaware corporation will never have to pay corporate income taxes for doing business elsewhere in the country.

If your company is also registered in California, you will still pay taxes on your Californian income. This is where things can get incredibly complicated, which is why I always recommend against incorporating outside of your home state.

There is also the business of a registered agent to consider.
States like Nevada and Wyoming require you to have a registered agent if you don’t live in the state. This is relatively easy to organize, but it is another layer to the bureaucracy and there are more fees you must consider.

In short, the added responsibilities are simply not worth it for most companies. Any tax advantages are quickly eaten up the additional filing fees, so there is no real benefit. If you want to explore more about starting a U.S. business, you should visit https//mollaeilaw.com/start-us-business/.

What Does Incorporate a Business Mean?

When creating a new business, you as the owner can form your business in a number of ways that best fits your business.

To incorporate a business means to turn your business into a Corporation entity recognized by states in United States. When a business owner decides to form a Corporation, that Corporation becomes a legal business structure independent of its owner or owners.

 

What is a Corporation?

Corporation is an independent business entity, separate from the people who own, control, and manage it.

Corporations can enter into contracts, incur debts, and pay taxes apart from its owners. In other words, the Corporation itself, not the shareholders who own it, is held legally liability for the actions and debs the business incurs.

 

Benefits of Incorporation

The biggest benefit to forming a Corporation is personal liability protection. Shareholders of a Corporation have limited liability protection, which means creditors can’t come after an owner’s personal assets to collect a debt. The same applies if the business gets sued.

Also, Corporations can raise capital more easily through the sale of stock. Stock can come in different classes, can be used to reward employees in addition to compensation, and can even be publicly traded.

 

Disadvantages of Incorporation

Corporations typically pay higher filing fees than other business entities when incorporating with the state.

Corporations must also keep more records, such as Articles of Incorporation, bylaws, resolutions, minutes and annual meeting minutes, communication to shareholders, and annual reports.

Best State to Incorporate in for Different Business Types

The only differentiation you need to make is whether you are an online business or an offline business. The business type largely doesn’t matter.

There may be various tax advantages in places for nonprofits and tech startups. However, you should investigate your local market because it will differ from state to state, and sometimes from county to county.

The best state to incorporate in should largely be dictated by your local market. That’s why so many tech startups continue to establish themselves in California and Washington, even though they are not the most tax-efficient states.

In short, remember the big picture.

Best State to Incorporate in 2019 – What if the Situation Changes?

A regular question I get from my clients is what if the situation changes in the next year? There is no way for anyone to know if there are going to be any changes to business-friendly states soon, but don’t let that stall you.
The reality is that the business-friendly states I have recommended here have been established and set in their ways for many years. It is highly unlikely anything is going to change soon.

However, you should always be aware of the changes happening in your state.

You should always have contact with a professional business lawyer like me, so you can confront any big changes, such as those experienced in Nevada in 2015.

Still have more questions about choosing the best state to incorporate in? Shoot me an email at sam@mollaeilaw.com.

So What is the Best State to Incorporate Your Business in?

An offline business should be incorporated in the state it will have its physical presence in and online businesses should opt for Delaware.

Huge corporations dealing across the country will always choose the tax haven, but for the small businesses, it isn’t worth trying to operate licenses in multiple states at once.

The best state to incorporate an online business in is Delaware for the following reasons:

  • No Residency Requirement – You don’t need to be active in this state, or even the country, to incorporate a business here.
  • Business-Friendly Justice System – Get an expert decision on your case, rather than one from an unqualified jury.
  • Low Corporate Income Taxes – Unless your company generates over $4 million per year, you don’t need to worry about paying corporate income taxes, and they only apply on revenue generated within Delaware.
  • Added Privacy – There is no requirement to reveal your personal information on the formation documents or to make your name available to the public.

Conclusion

Incorporating your business in any state doesn’t have to be difficult. With the right help, you can have your company up and running in a matter of days.

If you need help deciding on the best state to incorporate in, and to get started with the incorporation process, get in touch with me today. I can guide you through this difficult decision and ensure that you make the right move for your business.

Email me at sam@mollaeilaw.com and I will help you with every aspect of the process.