After you decide whether to form a corporation or LLC, the next step will be to decide on your formation state. The formation state — which is also referred to as the state of organization, domestic state, or home state — is the state in which you file your formation documents and the state whose corporation or LLC statute will govern your corporation or LLC. Show
There are a number of factors to consider when choosing the best state in which to incorporate or to form an LLC — including the cost of formation, post-formation fees, state taxation laws, and the compliance provisions of the governing statute. The costs, state taxation laws, and corporation/LLC laws vary from state to state, making some states more advantageous for certain small business owners than other states. Choosing the state where you are located or another stateYou have the option to form your corporation or LLC in the state where your business is located or where you will be conducting most of your business, but you can also choose any other state. However, it is important to remember that if you decide to form your corporation or LLC in a state other than where you are transacting business, you will be required to qualify (or register) to do business in the state where the corporation or LLC is transacting business. Every state other than the formation state is considered a “foreign” state. Having to qualify in a foreign state can increase your costs, as there are filing fees for qualification and in most states annual fees as well. It adds an extra level of compliance obligations. The added costs of fulfilling the ongoing business entity law and taxation requirements imposed by two states — the state of formation and the state of foreign qualification — often outweigh the perceived benefits of forming a corporation or LLC outside the state where the business is located. How do you form your corporation or LLCIn choosing your formation state you may want to consider how complicated or expensive the formation process is for the states you are considering. The process of forming an LLC or corporation requires the filing of a formation document (such as articles of incorporation for a corporation or articles of organization for an LLC) with the Secretary of State (or similar state agency) responsible for business entity filings. Your corporation or LLC will also have to choose a registered agent. This is the same regardless of the state. Some states have additional requirements. For example, the state may require publication of the formation. Although you can consider this, the formation process is not usually a deciding factor in choosing a domestic state. The states also impose filing fees when you file your formation documents. These can vary widely from state to state. Most states also impose annual fees. Some business owners mistakenly think they will save money by choosing a state with low fees, even if their company is neither located nor conducts business in that state. But keep in mind, as we mentioned earlier, that companies formed in one state but doing business in another state must register to transact business in the state where they are doing business. Weighing advantages: State statutes and taxation requirementsWhen deciding on your company's state of formation, research those states' corporation or LLC statutes to determine which is best for you. Corporation statutes differ from state to state and LLC statutes differ from state to state. A particular state you are considering may have a provision in its statute that you want to take advantage of – or a provision that you don’t want governing your company. Also, consider how corporations and LLCs are taxed by each state you are considering. Does a state impose an income tax on corporations and LLCs? Does it have a minimum tax or a franchise tax? The appeal of Delaware and NevadaDelaware and Nevada are two states in which some small business owners choose as their formation state even if they are not located or transacting business there. They offer unique advantages for certain types of businesses. Some potential advantages of forming your corporation or LLC in Delaware include:
Some potential advantages to forming a corporation or LLC in Nevada include:
Remember, if you form in Delaware or Nevada but you transact business in another state, you will have to foreign qualify where you are transacting business. For questions about the best state to incorporate your business or form an LLC, or to determine if you need to foreign qualify in another state, consider talking to an attorney. Ready to take the next step in launching your business? Contact BizFilings today to discuss your business formation options. Related articles When a corporation is in the state in which it is incorporated it is known as? Domestic Corporation: A corporation incorporated in a given state and doing business in that same state.
What does it mean to be incorporated in a state?Incorporation definition
Broadly speaking, incorporated means that your business is registered with a state so that it becomes a separate legal entity.
Which state is the state of incorporation?The state of incorporation refers to the state where the company was registered. For instance, a corporation registered in Delaware will be designated as a Delaware Corporation, and its state of incorporation will be Delaware.
What does it mean when a company is incorporated?The word "incorporated" indicates that a business entity is a corporation. by Michelle Kaminsky, J.D. updated July 27, 2022 · 2min read. "Inc." is an abbreviation of "incorporated," and both the abbreviation and the full word mean that a company's business structure is a legal corporation.
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