If you’re starting a business or trying to grow an existing one, you may be considering incorporating your business. Wondering about the best states for incorporation is one of the most important parts of the process for several reasons that we’ll cover in this article.
We’ll also be discussing factors to consider when choosing a state for incorporation, the topic of foreign qualification and how it relates to incorporation, and a look at seven of the most popular states for incorporation.
Background
Incorporation is the process of creating a legal entity and separating it from the entity’s owners. For a business, the result of incorporation is a legal entity separating its income and assets from its owners and investors. Some of the reasons you may want to incorporate include:
How to incorporate your business
Here are the steps to take when you’ve decided that it’s time to incorporate your business.
Step 1 - Choose a state. You must first choose a state in which to incorporate your business. We’ll elaborate on this point throughout the rest of this article. Once you’ve chosen a state, you may start researching the different cities within that state.
Step 2 - Name the registered agent. This is the person appointed to represent your corporation if someone needs to contact your business. While you could act as the registered agent, naming a third party to represent your business would allow you to protect your privacy as the owner.
Step 3 - File articles of incorporation. This is the official application you’ll submit to the state of your choice with the appropriate fee.
Step 4 - Declare tax structure.* All businesses that incorporate are taxed by default as a C corporation. After a discussion with your tax advisor, you may wish to be taxed as an S corporation.
Step 5 - Draft company bylaws. These are the rules that govern how your business will be run. Not all states require a set of bylaws, but it’s always good business practice to have them and adhere to them if your business is incorporated.
*NOTE: You’ll often hear or read the terms “corporation” and “C corporation” used interchangeably. As a business owner, you should understand that terms are distinct from one another. “Corporation” is strictly a legal term, while the phrase “C corporation” is strictly a tax term used only by the IRS.
What to consider when choosing a state to incorporate
Here are some factors to consider when looking at the best states for incorporation.
NOTE: Remember, though, that while you may incorporate your business in a state that doesn’t levy a corporate tax you’ll still be subject to another state’s tax laws if you operate your business there.
Top 7 States to Incorporate Your Business
Here’s a look at the top 7 states considered the best states for incorporation
But just because a particular state doesn’t appear on this list doesn’t mean it may not be a good choice for your business.
You’ll likely have to do a little digging to uncover which state(s) may be advantageous to incorporate for your business. A particular state may have a law you want to take advantage of, while another may have a provision you’ll want to avoid.
Delaware
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Nevada
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Wyoming
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South Dakota
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Alaska
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Florida
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North Carolina
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Incorporation Beyond State Borders
Regardless of your business’s state of incorporation, you’ll need to officially register in every state in which your company conducts business. This registration, formally called a foreign qualification, is extremely important for several reasons:
So what’s the definition of “conducting business in a state?” Here are some of the most common reasons why your business would need to qualify as a foreign entity before doing business in a new state:
Simple incorporation in all 50 states with 1-800 Accountant
Choosing the right state to incorporate your business is an important step during the process of incorporating your business.
In this article, you’ve learned about the benefits of incorporating your business, the steps you need to take to achieve this, and why choosing the right state to incorporate your business is so important.
This is a reminder that even though a particular state wasn’t included on our list of top states to incorporate, there may be better choices for your business.
With so many factors to consider when selecting a state to incorporate your business, a 1-800Accountant incorporation expert is just a few clicks away. Please contact us with any questions you have about incorporating your business.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.