Choice of State of Incorporation

The choice of jurisdiction in which to form your company usually comes down to either the state where the business will be located and Delaware. The decision generally comes down to the founders’ budget and goals for the company.

Choosing a State of Incorporation For Your New Business

In order to create a new company, the founders must choose a company name, the type of entity, and where to incorporate.

You are not required to incorporate in the state where your business operates; you have the freedom to choose from any one of the 50 states or the District of Columbia.

In making the decision of where to incorporate, there are two primary factors to weigh: your budget and your goals. The decision typically is between incorporating in the state of operations and incorporating in Delaware and registering the company in the state or states where the company will be doing business. If the corporation is a closely held company that does business primarily within a single state, local incorporation is typically the best decision. The cost of local incorporation will usually be less than incorporating in another state and qualifying to do business as a foreign company in that state.

A foreign company that qualifies to do business in another state is subject to taxes and annual report fees from both the state of incorporation and the qualifying state. Thus, the actual advantage of incorporating in a state with very low or no corporate income tax is not as great as it appears, if your business must still qualify to do business in its state of operations.