How Do You Choose a State for Incorporation?


Quick Answer

To choose a state for incorporation, consider the costs of the initial incorporation process, tax implications and the laws that apply in the state, suggests Nationwide Incorporators. Doing so is necessary to determine where the company can operate with the least cost and ensures that business owners can operate their companies as they desire.

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Full Answer

Use the following steps to choose the right state to incorporate in.

  1. Consider incorporation fees
  2. Each state has a different one-time fee for incorporation, and it can vary widely, warns Entrepreneur. In addition, there are annual and filing fees in most states. If incorporating out of state, the business owner might also seek legal counsel to learn about state requirements, which can add to the start-up cost.

  3. Look at tax implications
  4. Most states require corporations to pay state corporate income tax or gross receipts taxes, and there may be franchise taxes as well. Since some states don't require any or some of these taxes, choosing the right state can save money in the long run, notes Entrepreneur. However, the tax rates should not be the ultimate factor since taxes and fees apply in the home state too.

  5. Review state laws and requirements
  6. It's also important to look at how each state resolves business disputes, such as those involving debt collection, and to make sure that important communication reaches the home state.

  7. Make the choice
  8. After examining costs, taxes and state requirements, weigh the advantages and disadvantages of the states selected to make the choice that makes sense for the corporation.

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