5 Legit Reasons Why Business Owners Might Want To Incorporate In Another State

photograph of the United States map with green pins as markers to illustrate incorporation in another state
Planning to incorporate in another state? Here are some of the main reasons why business owners sometimes incorporate outside their home state.

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Fun fact: there is no existing law requiring business owners to establish their companies in their home state. While incorporating in the business’ own state is often the convenient choice, there are also good reasons to incorporate in another state.

Now there are many considerations that should be kept in mind before making such a move during your business incorporation process. Of course, you need to familiarize yourself with the host state’s regulations and requirements to incorporate there successfully. On top of that, you’d also want to study about how incorporating out of state can directly benefit your business.

Not all states are created equal. Some definitely offer greater advantages than others.

So for this blog, we’ll share with you several valid reasons why some business owners decide to incorporate in another state.  

1. You can save on taxes when you incorporate in another state

First and foremost, amazing tax benefits are among the most common reasons why business owners choose to incorporate in another state. For example, the state of Delaware attracts “the eye of corporations across the world” because of this.

As a Forbes feature tells us:

“Corporations registered in Delaware that do not do business in the state do not pay corporate income tax. Delaware also does not have a sales tax, investment income taxes, inheritance taxes or personal property taxes.”

For the most part, companies only need to file their annual report, which costs $50 for domestic corporations. Additionally, business owners have to pay a flat Franchise Tax rate of $175. Compared with income tax requirements and other taxes implemented by other states, entrepreneurs will certainly save significant amounts of money in the First State.

No wonder Delaware “continues to be the domicile of choice for members of the Fortune 500 at nearly 66.8%.” It’s the top choice for business formation in another state.

2. Some states have business-friendly laws and better legal systems

Case in point, the 2019 Lawsuit Climate Survey shows us the state liability systems rankings as perceived by US businesses.

According to the team, the survey also “aims to quantify how corporate attorneys, as significant participants in state courts, view the state systems by measuring and synthesizing their perceptions of key elements of each state’s liability system.”

photograph of a wooden gavel on a clear background symbolizing laws of business formation in another state

Image source: Unsplash

Conducted by The Harris Poll for the US Chamber Institute of Legal Reform, the lawyers tell us that the top 5 best states for businesses are:

  • Delaware
  • Maine
  • Connecticut
  • Wyoming
  • Alaska

We also read:

“A state’s litigation environment continues to be important to senior litigators, with most respondents (89%) reporting that it is likely to impact important business decisions at their companies, such as where to locate or do business.”

3. You can open doors to better investment opportunities

Sometimes investors want to know if you plan to incorporate in another state or in your own state before investing in your business. In fact, picking the right state could make a big difference in them giving you the green light.

SCORE, a non-profit organization that offers free advice from business experts, shares:

“For some corporations, it may be necessary to incorporate in Delaware. Companies seeking outside funding may find their investors require incorporation in Delaware in order to receive their support.”

The reason behind this requirement? Well, it’s connected with the aforementioned legal advantages. As pointed out by Score, some investors “feel more secure with Delaware’s Court of Chancery and the state’s well-defined corporate laws.”

4. You can enjoy privacy protection

Privacy is a big issue for business owners. That’s why some decide to incorporate in another state. For instance, certain states allow having an anonymous LLC where the name and contact information of all those involved are kept private.

States like Delaware, New Mexico, Nevada, and Wyoming do not publish or require LLCs to publicize their owners’ real names and contact details. In such cases, all you need to do is assign or hire a registered agent who will represent your company.

5. Greater flexibility and faster incorporation process

Lastly, some US states can also assure business owners of a speedy and flexible business formation experience.

Again, Delaware makes a fine example in this aspect. Besides, the Division of Corporations “offers a variety of services including ‘1-Hour’, ‘2-Hour’, ‘Same Day’ and ‘Next Day’ Expedited Services… designed to meet your business needs.” 

screenshot of delaware division of corporations website for businesses planning to incorporate in another state

Meanwhile, Entrepreneur likewise points out that corporate structure is more versatile in the state of Delaware compared with others. According to the popular business magazine:  

“Delaware allows just one person to be the only director, shareholder and officer of a corporation. In other states, you may need a minimum of three people to hold the officer and director positions.”

Final thoughts

Things really do not have to be complicated as you incorporate in another state. If you take time to research and tap the right professionals to help you, then the process can be quick and smooth. A skilled and experienced registered agent can make a difference in your entire incorporation experience. So don’t hesitate to hire a third-party provider if you want things done the right way. They can provide valuable guidance not only during business incorporation in another state, but also in the years ahead as you strive to stay legally compliant.  

Featured image source: Nico Smit on Unsplash

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