The location of your start-up can be as important as your business idea itself. Different states have different environments, resources, and opportunities that can affect the growth of a new business. With thousands of new startups being founded in the United States each year, multiple states have emerged as top choices.

Below, we’ll discuss how some states such as California – with its tech-savvy culture – or Texas, with its business-friendly policies, might be better suited for one company over another. We’ll also explore what you should consider when choosing a state in which to incorporate. Here’s what you need to know.

What’s in this article?

• What are the best states for startups?
  
• How to pick the best state to incorporate in
  

What are the best states for startups?

The best state for your startup will depend on your industry, cost considerations, and growth plans – as well as state-specific factors including the local economy, tax policies, and quality of life.

Popular states for launching a startup include California, New York, and Texas. The key traits of the ideal states for startups are outlined below.

California

Known for Silicon Valley, California has a strong environment for tech startups with ample venture capital, a large pool of talented professionals, and a history of innovation.

• Access to capital: Exceptional. Silicon Valley is a global hub for venture capital.

• Talent availability: High. There is a concentration of universities and tech companies attracting skilled professionals.

• Business climate: Very dynamic. There is a high density of startups and innovation leaders.

• Tax environment: Less favourable. California has high tax rates.

• Cost of living and operating expenses: Very high.

• Regulatory environment: Complex.

• Infrastructure: Well-developed in urban areas.

• Market size and access: Large and diverse market. It is beneficial for scalability.

• Support networks and resources: Extensive. There are many incubators, accelerators, and networking events.

New York

New York, especially New York City, is a hub for various industries including finance, media, and technology. It has a diverse talent pool and extensive networking opportunities.

• Access to capital: Excellent. This is particularly true for finance and tech industries.

• Talent availability: High. There is a diverse and skilled workforce.

• Business climate: Competitive. There is a mix of startups and established industries.

• Tax environment: High taxes, similar to California.

• Cost of living and operating expenses: Very high, especially in NYC.

• Regulatory environment: Complex.

• Infrastructure: Well-developed, especially public transportation.

• Market size and access: Large. There are major customer and partnership opportunities.

• Support networks and resources: Strong. There are several resources for entrepreneurs.

Texas

Cities such as Austin are becoming increasingly popular for startups with a friendly business environment, growing tech scene, and no state income tax, which can be attractive for entrepreneurs.

• Access to capital: Growing, particularly in Austin and Dallas.

• Talent availability: Increasing. More professionals are moving to Texas.

• Business climate: Business-friendly. There is a growing tech scene.

• Tax environment: Favourable. There is no state income tax.

• Cost of living and operating expenses: Moderate. They are lower than California and New York.

• Regulatory environment: More relaxed.

• Infrastructure: Good, but it varies by location.

• Market size and access: Large. There is a growing population and economic diversity.

• Support networks and resources: Expanding, especially in tech hubs such as Austin.

Massachusetts

With world-class universities and a strong focus on research and development, Massachusetts is particularly appealing for startups in biotech and education technology.

• Access to capital: Strong, particularly for biotech and education tech.

• Talent availability: Excellent. The state’s renowned universities produce skilled graduates.

• Business climate: Innovation-friendly, especially in Boston and Cambridge.

• Tax environment: Moderate. It is not as high as California or New York.

• Cost of living and operating expenses: High, particularly in Boston.

• Regulatory environment: Moderate. There are supportive policies for certain industries.

• Infrastructure: Well-developed, particularly in urban areas.

• Market size and access: Moderate. There is a focus on specialised markets.

• Support networks and resources: Strong, particularly in academia and industry partnerships.

Washington

Home to large tech companies such as Microsoft and Amazon, Washington state has a thriving environment for tech startups and comes with no state income tax.

• Access to capital: Good, especially in the tech sector.

• Talent availability: High. Tech giants and universities attract skilled professionals.

• Business climate: Very supportive for tech startups.

• Tax environment: Favourable. There is no state income tax.

• Cost of living and operating expenses: High in Seattle, but it is more affordable in other areas.

• Regulatory environment: Business-friendly, with a focus on technology and innovation.

• Infrastructure: Good, particularly in the Seattle area.

• Market size and access: Moderate. There is a strong local market and proximity to the Pacific Rim.

• Support networks and resources: Strong, particularly in technology and innovation sectors.

Colorado

Denver and Boulder have developed reputations of being great places for startups, with a supportive community, active lifestyle, and growing tech scene.

• Access to capital: Growing, particularly in Denver and Boulder.

• Talent availability: Increasing. There is a draw for young professionals.

• Business climate: Entrepreneurial and innovation-friendly.

• Tax environment: Moderate. It is more favourable than some coastal states.

• Cost of living and operating expenses: Rising. They are still more manageable than states such as New York and California.

• Regulatory environment: Business-friendly.

• Infrastructure: Good, particularly in the Denver area.

• Market size and access: Moderate.

• Support networks and resources: Expanding, especially in hubs such as Denver.

Nevada

Nevada has evolved into a start-up destination due to its tax benefits and low cost of living compared to California and New York.

• Access to capital: Moderate. It is more pronounced in sectors such as entertainment and tourism.

• Talent availability: Varied. There are specific strengths in hospitality and entertainment.

• Business climate: Business-friendly. There are ongoing efforts to diversify the economy.

• Tax environment: Favourable. There is no state income tax.

• Cost of living and operating expenses: Generally reasonable. It varies between urban and rural areas.

• Regulatory environment: Business-friendly. There is less regulation compared to coastal states.

• Infrastructure: Good in major cities, but it varies across the state.

• Market size and access: Moderate. There is a strong focus on tourism and entertainment.

• Support networks and resources: Growing, particularly in Las Vegas and Reno.

Wyoming

Like Nevada, Wyoming offers appealing tax benefits for startups, as well as a lower cost of living for anyone moving from a coastal city.

• Access to capital: Limited. There are more challenges due to a smaller population and business community.

• Talent availability: More limited. There is a smaller workforce and fewer higher education institutions.

• Business climate: Very business-friendly. There is a low population density, and high efforts to attract businesses.

• Tax environment: Favourable. There is no state income tax and a low sales tax.

• Cost of living and operating expenses: Generally low, which can be appealing for cost-conscious businesses.

• Regulatory environment: Very business-friendly. There are minimal regulations.

• Infrastructure: Adequate. The rural nature of the state can pose challenges.

• Market size and access: Limited. The state has a small population and remote locations.

• Support networks and resources: Emerging. There is a focus on sectors such as energy and agriculture.

Delaware

Delaware is a well-known hub for incorporation, with a majority of 2022 public offerings incorporated in the state. Its advantageous tax system and a court that’s written most modern US corporation case law add to its popularity, but some of its benefits don’t apply to companies that operate within the state – such as its benefit of no state corporate income tax for companies operating outside of Delaware.

• Access to capital: High. Venture capitalists look favourably on Delaware corporations.

• Talent availability: More limited. There is a smaller workforce.

• Business climate: Very business-friendly.

• Tax environment: Favourable. There is no state income tax for businesses operating outside the state.

• Cost of living and operating expenses: Moderate. They are lower than San Francisco and New York City.

• Regulatory environment: Very business-friendly.

• Infrastructure: Good, particularly in the Dover area.

• Market size and access: Limited. There is a small population.

• Support networks and resources: Moderate. They are not as high as California or New York.

How to pick the best state to incorporate in

The state in which you choose to incorporate your business will impact your operations, tax liabilities, and legal obligations in the long term. You want to choose a state that balances the benefits of favourable business environments with the practicalities of where your business operates and where you plan to grow. States such as Delaware, Nevada, and Wyoming are popular for their business-friendly laws and tax regimes, but their benefits might not align with your business needs. Delaware, for example, is a top choice for many corporations due to its advanced corporate law structure, but it has a smaller talent market than other locations.

Here’s a guide on factors to consider when choosing your state for incorporation.

Business climate

Business climate includes the overall economic environment, presence of other startups and established companies, and the state’s openness to new businesses. Research the general business environment of a potential state and learn about the state’s history with businesses in your industry.

Market size and access

The potential to reach and serve a substantial number of customers within the state or region is important for business growth. Evaluate the economic stability and growth prospects of each state.

Tax implications

State and local tax policies including corporate taxes, personal income taxes, and sales taxes affect a business’s bottom line. Analyse corporate tax rates, personal income tax, sales tax, and any other relevant taxes in each state. Some states, such as Nevada and Wyoming, offer no corporate or personal income taxes, which can be advantageous.

Legal and regulatory factors

State laws and regulations such as licensing requirements and business operation laws are an important factor. Assess the state’s overall legal and regulatory framework for businesses; consider the legal protections offered to companies and their directors in the state; and review the state’s history of legal precedents and litigation trends to gauge the legal environment.

Infrastructure

Quality infrastructure supports business operations and growth. Consider the state’s infrastructure such as its transportation, communication networks, utilities, and access to financial resources.

Talent availability

A strong pool of potential employees with the necessary skills and education can make a huge difference for a start-up’s growth and innovation. Evaluate the availability of a skilled workforce in each state you’re assessing.

Access to capital

The availability of funding from venture capitalists, angel investors, banks, and grants can greatly impact a start-up’s success.

Cost of living and operating expenses

Research the affordability of housing, utilities, and other services. This can influence where you choose to live and establish your businesses.

Quality of life

Consider factors such as health care, education, and recreational opportunities. These can attract and retain talent.

Support networks and resources

The presence of incubators, accelerators, networking groups, and educational resources can provide valuable support and guidance for startups.

Fees

Assess the initial incorporation fees and annual report fees for potential states. Some states, including Delaware, have favourable fee structures for businesses.

Business presence

Consider your business’s physical presence (e.g., an office or store). It might make sense to incorporate where you’re physically located.

Future growth

Think about your long-term business strategy and how incorporating in a particular state aligns with those goals. Some states are more favourable for scaling a business due to their economic policies and market access.

Residency requirements

Some states have residency requirements for incorporating a business. Ensure you meet these requirements if you choose to incorporate outside your home state.