question.jpgIn Business Law

What state should I incorporate in?

While you can basically set a partnership up in any state because state partnership law is fairly uniform, the same is not true for corporations because corporate law differs, often drastically, from state to state. In deciding which state would be best for the purposes of your incorporation, there are many factors that could come into play, including where you business is going to be located, where your business will be operating, what requirements each given states places on corporations, what filing fees are required by each given state, how that state’s tax scheme works, what the state laws are regarding corporate rights, whether the state will allow you to make your corporation a close corporation, etc.

For smaller corporations, this decision is usually easy, and small corporations generally incorporate either in the state where they will operate or in the state that has the simplest requirements and the smallest associated fees. Larger corporations tend to incorporate in the most favorable state.

Historically, Delaware has been the friendliest state for big corporations, and is where many of them are therefore incorporated. This is because, among other things, Delaware has a relatively cheap corporate franchise tax, has laws which give directors a broad ability to limit their liability, offers a separate court system for corporations, allows for some anonymity in terms of corporate operation and does not require a minimum capital investment in new corporations. In addition, for public corporations, there is a certain degree of respect and esteem that is associated with being incorporated in Delaware.

In recent years, however, many corporations have been electing to incorporate in Nevada. This is largely due to the fact that Nevada offers low corporate taxes along with some of the advantages of incorporating in Delaware (such as relatively broad limited liability protection for directors and officers).