Do you find yourself running to your lawyer or online forum and asking “where should I Incorporate?”
Once you have decided on how to name your business, the next step is to figure out where you should incorporate. Many entrepreneurs over think the question of where they should incorporate their business.
Honestly, this should be one of the easiest parts of starting your entrepreneurial venture.
They hear grand stories of all the Delaware corporations, but then again, they have heard that there is no income tax in Texas or Florida… (there isn’t)
But they have also heard great things about the favorable business climate in Wyoming or Nevada… Click here for more on why you should rethink filing your business in Wyoming or Nevada.
So… Where Should I Incorporate?
Your best bet is to play it safe and file in your home state. In other words, file in the state where you live.
If you are a startup who is recruiting investors and many employees, a Delaware corporation may be the way to go, but 99.9% of internet-based and other small businesses don’t fall into this category.
Why You Should Incorporate in Your Home State
There are many reasons to file in your home state. Here are a few.
For starters, it will be easier and less expensive for you. By filing in another state, you will be responsible for maintaining a physical address in that state for purposes of having a registered agent there.
You will have to pay filing fees in that state, which may or may not be more expensive or burdensome than the fees in your state.
You will also have to file annual reports in that state.
But you expected all that, correct? So you are probably wondering what the big deal is.
Here’s the big catch…
Even though you have registered your business in another state, you may still have to do the following:
- Register your business as a foreign entity in your home state, since that is where you are doing business. If you are keeping track, that means paying another filing fee, (sometimes more expensive than the filing fee for a normal entity in your state).
- File duplicate annual reports in your state (and yes, that means ANOTHER filing fee).
- Qualify as a foreign entity in your own state
Not to mention, just because you may decide to incorporate in a state with no income tax doesn’t mean you can avoid paying the state income tax where you live. So if that is your main reason for filing somewhere else, then you may want to rethink that choice.
When You May Want Incorporate in Another State
All this being said, there are still some times when filing in a different state (other than where you live) may be appropriate. Here are two reasons to consider.
First, you have plans to move to the other state within the next year and you don’t want to go through the hassle of dissolving and re-filing your business entity after you move.
Second, if you live near state borders. You may live in one state, but your business is in the neighboring state. In that situation, you may be able to choose depending on which state would be more beneficial to you. But in that situation, I would recommend talking to an attorney or tax professional to help you make that decision.
What’s the Bottom Line on Where to Incorporate?
For most small businesses, filing in the state where you live and where the business operates is just fine.
As I said before, don’t overcomplicate this.