It’s always best to search the internet for your specific state of interest when you are considering incorporating. However, it is important to note that some states have very low fees associated with forming an LLC or corporation, while others can be more expensive.
Some states are also extremely strict on what they require from companies who file to incorporate there, especially in places where it is easy to incorporate. To help you in your search, this article will provide a general overview of each state’s pros and cons when incorporating there.
Top 5 Best States to Incorporate
Delaware is often considered to be the best state to incorporate due to the ease of starting a business there.
Starting a business in Delaware is not expensive and does not require a lot of red tape. Delaware corporate law is also very business-friendly. Delaware is also known for being a tax haven, so the state doesn’t collect taxes from companies that incorporate there.
Benefits of Incorporating in Delaware
- The fee to incorporate in Delaware is very small
- They have the easiest annual requirements
- It is easy to get an EIN number
- The state of Delaware has a lot of lawyers who specialize in incorporating businesses there. This makes it easier for you if you need legal or tax advice when starting out your company.
- The Delaware Court of Chancery is considered to be one of the fairest courts in the country.
Disadvantages of Incorporating in Delaware
- A significant part of the state’s economy depends on corporations, so there are some laws that benefit them over regular people
- Corporations can bring lawsuits against individual shareholders
Nevada is a good state to incorporate in because there are very few restrictions on the types of businesses that are allowed to be incorporated there.
Benefits of Incorporating in Nevada
- The fee for incorporating in Nevada is low.
- You can get an EIN number easily without having to fill out extra paperwork.
- There are no residency requirements for corporations established there. This means that anyone, regardless of where their business originates from, can establish a corporation to do business in America by registering it with the Secretary of State’s office.
- They have zero taxes on corporate income. Even though they have zero taxes, if you conduct business here, you will still need to file taxes yearly with the IRS and pay taxes on the income that your company makes.
Disadvantages of Incorporating in Nevada
- If you are looking to establish a corporation outside of America, you have to have an office or registered agent in Nevada
In Wyoming, it will be pleasant for you to pay filing fees associated with it when incorporating there. They also don’t require any minimum capital requirements.
Benefits of Incorporating in Wyoming
- The fee for incorporating in Wyo is lower than most states
- There’s no requirement for initial capital when starting up a business there. This means that you can put very little money into your new company and still get started without having to spend extra money
- They only ask for basic paperwork like your incorporation paperwork and the DBA paperwork, but they don’t require much more than that
Disadvantages of Incorporating in Wyoming
- They do not have a state income tax. However, they do have local taxes, which could make up for the lack of an income tax. This also means depending on where your business is located; you could be required to pay additional property taxes
4. South Dakota
South Dakota is one of the best states to incorporate because it has low fees associated with incorporating there. It also does not ask for any minimum capital requirements when starting up your company.
Benefits of Incorporating in South Dakota
- The fee to start up your company in South Dakota is only $50
- There aren’t any minimum capital requirements
- There are not many restrictions on what type of business you can run in South Dakota.
Disadvantages of Incorporating in South Dakota
- The state only asks for the name and address of your corporate office, but they do not offer any assistance with finding an agent or attorney to handle this for you. If you are looking to locate anyone outside of America, there is no help provided by the state besides filling out the necessary paperwork
- They have a small yearly fee associated with maintaining your corporation there
Georgia has one of the easiest laws when it comes to incorporating businesses because all you need to do is choose a name that’s available. You don’t even need to file articles of incorporation, and you can start to transact business within 30 days of incorporating.
Benefits of Incorporating in Georgia
It’s very easy to file for incorporation, and it usually only takes a few minutes.
While the state does not offer any online incorporation services, they do send out annual forms that don’t need to be completed or filed until the next year.
Disadvantages of Incorporating in Georgia
- Georgia has one of the highest fees associated with filing documents about your corporation. This makes forming a corporation there much more expensive than in other places.
- They will not assist you with finding an attorney if you plan on setting up your company outside America.
Should I Form in My Own State?
If you want to stay close to home and have a presence in your own state, you can incorporate it in the state where you reside.
The process of incorporating is different in every state. Each one has its own requirements that need to be met. You obviously don’t want to spend more money than necessary when forming your business, so it’s important that you consider all of your options before deciding on which is best for your company. There are many factors, such as taxes and fees associated with each state, and we hope this list will help make it easier for you!
How Do I Decide Which Business Entity Is Right For Me?
The business that you start will determine which type of entity is right for your company. If it’s a corporation, limited liability company (LLC), or limited partnership (LP), qualify what type of legal structure is best for you and incorporate it there.
How to Incorporate Your Business: A Simple Overview of the Incorporation Process
The process of incorporating can be difficult if you don’t understand how to do everything correctly -Before you get started with filing your documents and making your payments, make sure that you’re fully prepared for this step.
Is There An Online Business Corporation Service Available?
Some states offer online incorporation services, while some require all transactions to happen through the mail.
Make sure that before forming a business in America, you look at what each state requires and if there is an online service available to make the process easier on yourself.
EIN: What Is It and Why Do I Need One?
An EIN is a Federal Taxpayer Identification Number that you’ll need to open up a bank account, hire employees, and carry out transactions -If you’re looking for an online service provider to help with obtaining your EIN, the process can be completed in as little as 24 hours.
How do I choose a name for my business?
You’re able to choose a business name that you like, and it is not required for there to be any connection between the company and your real name. Most states require a name search to be conducted through the secretaries of state and business bureau in order to make sure that no one else is using it.
Which states have the best business tax climate for forming an LLC or corporation?
There are a few states that stand out when it comes to having a good business tax climate. These include Colorado, Wyoming, Utah, and Nevada. There are a few other states that offer a great tax climate, but you’ll want to make sure that they have an online service when it comes to filing for your business.
Types of Corporations
- S Corporation:A corporation that has made an election to be taxed as an S corporation is subject to pass-through taxation. The personal income tax, deductions, capital gains tax, losses, and credits of the corporation are passed through directly to its shareholders. S Corporations are not subject to double taxation like C Corporations are. Instead, S Corporation profits flow through their business onto their tax returns where they are taxed at the shareholder level only once under a federal graduated tax system.
- C Corporation: A corporation formed by state law or by filing articles of incorporation with the Secretary of State/ Business Registry in your state of domicile. They are incorporated under state law but recognized as separate entities from their owners/shareholders, similar to partnerships or LLCs.
- Nonprofit Corporation: A nonprofit corporation is a corporation formed for the purpose of serving a public or charitable goal rather than to pursue profit. Nonprofit corporations are given special tax treatment in exchange for providing certain types of disclosure about the business to the state.
- Publicly traded companies: Privately-held companies that have filed to go public and trade their stocks on a major financial exchange such as the New York Stock Exchange or NASDAQ.
Things to Consider When Choosing a State to Incorporate In
Choose a state that you can qualify to be a resident of for tax purposes. Not every state allows out-of-state businesses to establish their corporation there. Ensure the state has an online service provider to help make your incorporation process flow more smoothly.
The Many Variables to Consider When Choosing In Which State to Incorporate
- Formation fees. These can range dramatically depending on the state. Some state filing fees are as low as $100, while others may not be able to form their corporation for less than $1000.
- Annual fees and filings. Annual fees can also vary greatly depending on the state. Many states offer the option to file your documents and taxes online, which will save you money in the long run.
- Legal compliance. Some states require more legal compliance while forming a business, while others don’t have this requirement at all. Ensure that if you choose a state with higher requirements, they have an online service provider to make filing your annual reports much easier for yourself. Otherwise, it could cost you extra in legal bills should problems arise from not filing correctly or on time. It should be noted that most states provide rules and regulations concerning yearly reporting needs. In Michigan, for example, businesses are required to submit their annual report within six months of incorporation and pay a $10 fee each year thereafter. California, on the other hand, requires a biannual report that must be filed within two and a half months after the beginning of a company’s fiscal year. Annual reports are due every July 1 for companies that have just started business in January, as well as January 1 for those who have been in operation since July.
- Franchise tax. This is a tax that may be levied by the state of incorporation on corporations formed in the state or foreign corporations authorized to do business in the state. This fee can vary depending on your state, but it typically doesn’t exceed $100.
- Legal and court system. Some states have stricter regulations in place for their court systems. Ensure your state has a properly working and reliable court system.
- Economic incentives. Some states will offer you tax breaks to help start your business or motivate you to expand your corporation there.
- Corporate protection. Some states such as Delaware, Nevada, and other popular corporate havens do not allow “piercing of the corporate veil,” while others, such as Texas and California, are more lenient when it comes to this concept meaning that if a creditor believes there is wrongdoing on behalf of the owners/ shareholders, they may be able to file suit and take legal action against them personally meaning that officers and managers can lose personal assets should mismanagement issues arise which can cause major problems.
- Investors.If you’re planning on expanding your business and attracting outside investors, choosing a state with a good reputation for protecting those investments may be important to you.
- Location. Some states have laws governing what businesses can operate there. For example, many states don’t allow online businesses (gambling companies) to establish themselves within their borders. Before establishing your corporation in a state, ensure that the intended operations of your business will be legal and practical within that jurisdiction through research and consultation with an experienced attorney first.
- Customer base/market share: Choosing a state where you already know that there is demand for your product or service might save time and money on marketing as well as help build up loyalty from customers who are already familiar with doing business with your company
- State corporate income tax. Corporations are required to pay corporate income tax at a flat or graduated rate, depending on the state. In some states, such as Nevada and Wyoming, there is no state corporate income tax.
What Is the Cheapest State to Incorporate?
The cheapest state to incorporate in depends on your needs. Some states have no corporate income tax, while others don’t require annual report fees or franchise taxes. Some require all of these, while some aren’t required at all.
All of the above factors influence what you’ll pay in total during the life of your corporation, so research accordingly before filing for incorporation with your desired state of choice if cost is an issue.
Just be sure to do your due diligence and read up on all relevant laws, regulations, and policies concerning the formation and ongoing costs associated with operating a business within that jurisdiction so you can become familiarized with potential pitfalls before making any final decisions on incorporating there versus elsewhere.
According to HowStuffWorks, “If you plan to form a corporation, your choice of state will impact how much it costs you to run and operate your business.”
Which States Are the Best at Protecting My Personal Assets and at What Cost?
Delaware, Nevada, and other popular corporate havens do not allow “piercing of the corporate veil,” while others, such as California and Texas, are more lenient when it comes to this concept meaning that if a creditor believes there is wrongdoing on behalf of the owners/ shareholders.
They may be able to file suit and take legal action against them personally, meaning that officers and managers can lose personal assets should mismanagement issues arise, which can cause major problems.
Domestic LLC vs. Foreign LLC: Which Is Better?
According to the IRS, “A foreign LLC is an unincorporated business organization with one or more members which has filed an election to be treated as a limited liability company under Subchapter K of the Internal Revenue Code.
The term “foreign” refers only to the location of the LLC and not its members, who may be residents or citizens of the United States. A domestic LLC is an unincorporated business entity formed under state law with two or more members having limited liability for debts and obligations.”
Some advantages of registering a Domestic LLC include
- Married couples can choose between filing as single individuals or as married individuals when they file their taxes by checking ‘married’ or ‘single’ on their tax return which could qualify them for a lower overall tax bracket.
- If you own or plan to own rental property, filing as an LLC allows the business itself to be taxed directly on its profits and losses, while rental income can also get taxed at the shareholder level depending on who gets paid and how much of that money is earmarked towards personal expenses rather than company expenses.
Some of the disadvantages include
- Having to file annual reports annually in your home state with your home state’s Tax agency (this varies from state to state) which can cost anywhere from $20 – $100 each time it needs to be filed along with any applicable taxes due
- Creating separate accounts for each member in order to properly track all personal contributions made towards investments, purchases, and other assets
- Taking on the risk of being sued personally if debt or obligation is incurred that exceeds what your personal assets are worth, which could include your home, car, and personal bank accounts.
What states make it easiest to form an LLC?
Delaware, Arizona, California, Iowa, Nebraska, and Nevada are among those with the least complicated requirements for setting up a limited liability company (LLC), according to Incorporate.com.
In order to qualify as an LLC in Delaware, for example, you must file a one-page Articles of Organization form with the Division of Corporations. On average, this will cost between $50 – $100 plus any applicable taxes due, depending on where you live outside of Delaware.
The only requirement is that you choose a name that complies with the rules and regulations of your state, which in this case is Delaware.
Which State Is Best for My Real Estate Investment LLC?
In order to determine what state is best for your real estate investment LLC, you should keep these points in mind:
- There are a number of tax advantages that will play a role in where you form your LLC
- You’ll want to consider the amount of paperwork and administrative fees you’re willing to deal with when determining which state is better suited for forming your new business entity.
- If you plan on hiring employees, choosing an area with a low unemployment rate and lower cost of living is ideal, as well as seeking out states which have less stringent regulations concerning worker’s compensation.
- You might also want to think about how much time it will take you to manage all affairs related to running your business, such as annual reports and other filing requirements, and administrative costs (such as company insurance and annual fees)
- You also might want to consider how much it will cost you in legal fees when determining which state offers the most benefits for your individual business structure, goals, and needs.
Why Should I Use an LLC to Manage My Real Estate Investments?
LLCs offer the protection you need through personal asset protection and bankruptcy laws (they don’t offer as much protection as a corporation)
- Provides more flexible management without the high costs of forming and maintaining a corporation
- LLCs can be taxed under their own federal tax return like a sole proprietorship or partnership, provides good liability protection, and is easy to set up and maintain (there are no formal board meetings that have to take place)
The best state to form your LLC would depend on the type of real estate investing you intend to do, the taxes that will apply to you, and other factors. It is up to each individual or business to determine what is best for them by taking into consideration these seven points. We hope this article was helpful for you to choose where you should form your Limited Liability Company (LLC).