Incorporating a business is a strategic decision that can shape a company’s future trajectory. Part of incorporating is choosing a jurisdiction, or the state where the corporation is formed. This choice can impact the amount of taxes owed, owner privacy, and how the firm is perceived by potential investors.

State-specific tax provisions, legal protections, and business environment can make certain states particularly attractive for incorporation. For example, over 66.7% of Fortune 500 companies are incorporated in the state of Delaware, although many of those businesses do not physically operate there.

The decision about where to incorporate could affect your bottom line, shape the direction of your company, and influence the options available to you for expansion and investment. And these benefits from making a calculated choice about incorporation jurisdiction are not limited to just large corporations—entrepreneurs, small business owners, and startups can also benefit from strategic planning. Here’s what to know about choosing the best state to incorporate in.

What’s in this article?

• How to choose which state to incorporate in
  
• Factors to consider when choosing a state to incorporate in
  
• What are popular states to incorporate in?
  
• How Stripe Atlas can help
  

How to choose which state to incorporate in

Choosing the right state to incorporate your business in is a decision that can affect operational effectiveness, financial health, and overall business success. By following a systematic decision-making process, you can make a strategic choice that supports your company’s objectives. Here is a step-by-step guide to determining which state to incorporate in.

1. Identify your needs: Understand the specific needs of your business. This could include appearing credible to investors, a more flexible corporate governance structure, or owner privacy.

2. List potential states: Based on your needs, list potential states where you could incorporate your business. For many businesses, this list will include their home state, Delaware (due to its extensive body of corporate law and its reputation among investors), and states with favorable tax environments, such as Wyoming, South Dakota, and Nevada.

3. Research the corporate laws of each state: Understand the corporate laws of each state on your list, paying special attention to laws that impact your specific needs. For instance, if you want a flexible corporate governance structure, look at how each state’s laws support this need.

4. Understand the tax implications: Engage a tax adviser to help you understand the tax implications of incorporating in each state on your list. This could include corporate income tax, franchise tax, sales tax, or property tax.

5. Consider filing and annual fees: Look at the cost of filing the incorporation paperwork and the annual fees for maintaining corporate status in each state. Note that many states also require you to appoint a registered agent, a person or company designated to receive official legal and government documents on behalf of your business. This can be yourself, another individual, or a third-party service. Commercial registered agent services typically cost around $50–$300 per year.

6. Evaluate the regulatory environment: Consider the ease of doing business and the regulatory requirements for businesses.

7. Consider privacy laws: If privacy is a concern, research the level of information you would need to disclose publicly in each state.

8. Look at the legal system and precedents: Review the legal system of each state, particularly if your business operates in a highly regulated industry or one where there are many legal disputes.

9. Consider investor perception and business credibility: If you’re planning on seeking investment funds, consider the perception of investors toward businesses incorporated in each state.

10. Assess economic stability: Check the economic stability of each state. This can give you an idea of the state’s future ability to maintain its current corporate laws and tax rates.

11. Compare and decide: After considering all of these factors, compare your options and make a decision. You’ll need to decide which factors are most important for your business.

Deciding where to incorporate requires thoughtful evaluation of multiple factors, and the best choice for a business depends on its unique needs and circumstances. It’s a good idea to get advice from legal and financial experts, ensuring you establish a firm foundation for your business’s success.

After you have considered all these factors and made your decision, you can then proceed with incorporating in the chosen state.

Factors to consider when choosing a state to incorporate in

Incorporating a business involves deciding which legal jurisdiction the business will operate in. This decision can significantly impact many aspects of the company. Before choosing which state to incorporate a business in, consider these factors:

• Taxation: States have different corporate income tax rates and structures. Some states—such as Nevada, South Dakota, and Wyoming—don’t levy any corporate income tax, while others, such as California, do. Some states, such as New York and Delaware, impose franchise taxes on businesses incorporated within their jurisdiction for the privilege of incorporating there. They are typically either a flat fee or based on the net worth of the corporation.

• Filing and annual fees: States have varying costs for filing the incorporation paperwork, and they also charge annual fees to maintain the corporate status. Some states have notably high fees, such as California, which charges $100 for corporations to file incorporation paperwork. Other states are known for lower or even no fees, such as Missouri, which charges no franchise tax and no annual fees. Beyond fees, many states require corporations to meet ongoing compliance requirements, such as holding annual shareholder meetings, maintaining corporate records, and filing regular reports with the state.

• Regulatory and legal environment: Different states have different regulations pertaining to businesses. The level of regulation can impact how easy or hard it is to conduct business. Some states, such as Delaware, have a robust body of corporate law that can provide predictability for businesses. Delaware’s Court of Chancery is well-known for its developed case law on business issues.

• Privacy laws: The level of information that needs to be disclosed publicly varies by state. Some states require more information about business owners and operators to be made public, while others offer more privacy. For example, California requires the names and addresses of directors and officers to be listed in public filings. By contrast, states such as New Mexico and Wyoming allow greater anonymity.

• Flexibility of corporate laws: Some states offer more flexibility in terms of corporate governance. For example, this could include custom governance structures or flexibility around board meetings. Delaware is a well-known example: its General Corporation Law is a particularly advanced and flexible corporate statute. Delaware also offers relaxed requirements for board meetings and the ability to create different classes of stock. Wyoming is another flexible state: corporations there can opt for simpler management structures with fewer formal requirements, such as not mandating regular board meetings, and can customize their bylaws to define roles, establish flexible voting rights, and create unique profit-sharing arrangements.

• Investor perception and economic stability: Investors often have perceptions about the credibility and stability of businesses incorporated in different states. The economic condition and stability of a state can influence this. For example, many large companies choose to incorporate in Delaware due to its strong legal framework, relative economic stability, and court system, and since investors often view Delaware incorporation positively.

• Business presence and operations
  If your business is going to operate primarily in one state, it might make sense to incorporate in that state. Incorporating in a different state from where you’re operating can often lead to paying fees and taxes in both states and dealing with additional regulatory complexity.

How heavily you weigh each of these factors is a subjective decision that should reflect your specific business concerns and priorities. Take your time and fully explore all of these considerations.

What are popular states to incorporate in?

The “best” state in which to incorporate depends on the specific circumstances and needs of each business. Here are a few commonly preferred states and the reasons why they are preferred:

Delaware

Delaware is often considered to be the gold standard for incorporation, particularly for larger corporations and those with ambitions to go public. Many view it as the best state to form a holding company or investment company. This is primarily due to its well-developed and sophisticated body of corporate law. The Delaware Court of Chancery, which specializes in business law, is renowned for its comprehensive case law and swift decisions. This legal certainty provides a level of predictability for businesses. It’s also considered by many to be the best state for a startup seeking venture capital to incorporate.

Delaware also offers flexible statutes that allow companies to structure their governance and management as they see fit. However, Delaware isn’t necessarily the cheapest state for businesses, especially smaller ones. The state has an annual franchise tax that can be substantial for larger corporations—corporations pay a minimum of $175 but the rate can reach thousands of dollars depending on the company’s size. Delaware’s incorporation fees also aren’t the lowest—corporations pay a minimum of $109 with the ultimate total depending on the company’s number of authorized shares. Additionally, businesses that operate in another state will still have to pay to qualify to do business in that state, which can lead to additional costs and complexity.

Nevada

Known for its business-friendly environment, Nevada has no state corporate income tax, no franchise tax, and no personal income tax. These tax advantages can be significant for businesses.

Additionally, Nevada offers strong privacy protections and allows for the use of nominee officers and directors, which can help protect the identities of the business owners. The state also has strong protections against “piercing the corporate veil”—a legal decision in which courts drop the business owner’s limited liability protection provided by the company—which provides a high degree of protection for corporate owners.

However, companies considering Nevada should be aware that if they operate primarily in another state, they will still likely be subject to taxes in that state. Additionally, the lack of a well-developed body of corporate case law in Nevada can lead to less predictability in the legal system compared to a state such as Delaware.

Wyoming

Wyoming has many of the advantages that Nevada offers: there’s no state corporate income tax, franchise tax, or personal income tax, and the state provides strong privacy protections for businesses.

Wyoming also has a reputation for having a business-friendly legal environment, including protections against piercing the corporate veil. In addition, Wyoming offers “perpetual existence” for corporations, meaning corporations can continue to exist even if an owner dies or leaves the business.

An important consideration for businesses looking at Wyoming is that, like Nevada, the state’s corporate law isn’t as well-developed or predictable as Delaware’s. Additionally, businesses operating in another state will still need to qualify to do business in that state, which can result in additional costs and regulatory requirements.

Home state

For many small- and medium-sized businesses, the benefits of filing articles of incorporation (the foundational legal document filed with a state to officially create a corporation, establishing its basic structure and existence) in states such as Delaware, Nevada, or Wyoming might not outweigh the costs and complexities of doing business as a foreign corporation in the state where they operate.

For non-US residents, however, the calculation is different—since they have no home state to default to, choosing the right formation state matters more. Delaware tends to be favored by high-growth startups, while Wyoming and New Mexico offer lower costs and greater privacy.

Businesses that operate entirely online also have genuine flexibility in their choice of state, since they're not tied to a physical location. Online businesses without a physical presence aren't required to register in any particular state. For those prioritizing costs, New Mexico stands out with a low filing fee and no annual report fee, making it one of the least expensive states to incorporate. Wyoming is another strong option for online businesses, combining low costs with strong privacy protections and no state income tax.

If a business operates primarily in one state, it often makes sense to incorporate in that state. Incorporating in the home state also ensures that the company’s operations are governed by the laws of the state where it does business, which can provide a degree of legal certainty.

Whether you are a small business owner, an entrepreneur just starting out, or a larger corporation planning to expand, make your incorporation decision with careful consideration. You don't need a lawyer to incorporate; many states allow you to file the paperwork yourself directly through the Secretary of State's website, and online formation services can simplify the process further for a modest fee. Legal and financial advisors can be valuable for more complex situations, such as multiowner businesses, companies planning to raise investment, or anyone navigating the trade-offs between jurisdictions. Ultimately, the best state for incorporation is the one that aligns best with your business's unique needs and long-term goals.

How Stripe Atlas can help

Stripe Atlas sets up your company’s legal foundations so you can fundraise, open a bank account, and accept payments within two business days from anywhere in the world.

Join 75K+ companies incorporated using Atlas, including startups backed by top investors like Y Combinator, a16z, and General Catalyst.

Applying to Atlas

Applying to form a company with Atlas takes less than 10 minutes. You’ll choose your company structure, instantly confirm whether your company name is available, and add up to four cofounders. You’ll also decide how to split equity, reserve a pool of equity for future investors and employees, appoint officers, and then e-sign all your documents. Any cofounders will receive emails inviting them to e-sign their documents, too.

Accepting payments and banking before your EIN arrives

After forming your company, Atlas files for your EIN. Founders with a US Social Security number, address, and cell phone number are eligible for IRS expedited processing, while others will receive standard processing, which can take a little longer. Additionally, Atlas enables pre-EIN payments and banking, so you can start accepting payments and making transactions before your EIN arrives.

Cashless founder stock purchase

Founders can purchase initial shares using their intellectual property (e.g., copyrights or patents) instead of cash, with proof of purchase stored in your Atlas Dashboard. Your IP must be valued at $100 or less to use this feature; if you own IP above that value, consult a lawyer before proceeding.

Automatic 83(b) tax election filing

Founders can file an 83(b) tax election to reduce personal income taxes. Atlas will file it for you—whether you are a US or non-US founder—with USPS Certified Mail and tracking. You’ll receive a signed 83(b) election and proof of filing directly in the Stripe Dashboard.

World-class company legal documents

Atlas provides all the legal documents you need to start running your company. Atlas C corp documents are built in collaboration with Cooley, one of the world’s leading venture capital law firms. These documents are designed to help you fundraise immediately and ensure your company is legally protected, covering aspects like ownership structure, equity distribution, and tax compliance.

A free year of Stripe Payments, plus $50K in partner credits and discounts

Atlas collaborates with top-tier partners to give founders exclusive discounts and credits. These include discounts on essential tools for engineering, tax, finance, compliance, and operations from industry leaders like AWS, Carta, and Perplexity. We also provide you with your required Delaware registered agent for free in your first year. Plus, as an Atlas user, you’ll access additional Stripe benefits, including up to a year of free payment processing for up to $100K in payments volume.

Learn more about how Atlas can help you set up your new business quickly and easily, and get started today.