One of the most critical choices clients face when starting a business is deciding in which state they will incorporate their company.
While many business owners opt to form an LLC or corporation in their home state, others may explore the potential benefits of registering in a different state instead. Why would someone consider that?
For one, they might have heard that certain states have lower income tax rates, laws that are more business-friendly, or lower business formation fees. I encourage you to make your clients aware that the “right” state will depend on a variety of factors.
Important Variables to Consider When Choosing Where to Incorporate:
1. Business Formation Fees
Every state requires a one-time filing fee for forming an LLC or a corporation there. The cost can vary significantly from one state to the next— some are under $100 (like Arkansas, Colorado, and New Mexico) and others are several hundred dollars (like Connecticut, Massachusetts, and Texas). In some states, like Nevada, the initial filing fee will vary according to the number of shareholders a corporation has.
Just because a state's business registration filing fee may be more than what other state's charge, it doesn't mean establishing a business in that state will be more expensive overall. The formation fee is a one-time charge, and therefore it likely won't have a significant impact on the bottom line of a business over its entire lifetime.
About Nellie Akalp
Nellie is CEO and Founder of Corpnet.com, which caters to small business owners and accountants who need assistance with the official paperwork needed to start and run a compliant business in any or all of the 50 United States. Services include Business Incorporation, LLC Formation, and DBA Filings for new business startups.