How to Pick a State for Your Business Formation

Compare state filing fees, taxes, legal protections, and compliance costs to choose where to incorporate your business.

  1. Calculate total first-year formation costs. Add state filing fees, registered agent fees, and any required publications. Delaware charges $89 for LLCs, $89 for corporations. California hits LLCs with a $70 filing fee plus $800 minimum franchise tax immediately. New York requires costly newspaper publication for LLCs—budget $1,000-$2,000 in NYC.
  2. Project ongoing state tax liability. Calculate franchise taxes, gross receipts taxes, and minimum fees for years 2-5. Delaware charges LLCs $300 annually, corporations pay based on authorized shares. California's $800 LLC minimum applies regardless of profit. Texas has no corporate income tax but charges gross receipts tax on revenue over $1.18M.
  3. Factor in your physical business operations. If you operate in one state, you'll likely need to register there as a foreign entity anyway—adding $100-$500 in fees plus ongoing compliance. Home state formation often costs less than Delaware formation plus foreign registration. Only go out-of-state if you operate in multiple states or have specific legal protection needs.
  4. Evaluate legal framework benefits. Delaware offers established case law and business-friendly courts, worth the premium for venture-funded companies or complex ownership structures. Wyoming and Nevada provide strong liability protection for LLCs. Most single-member LLCs and small corporations get adequate protection from any state's laws.
  5. Add up compliance and administrative costs. Factor in registered agent fees ($100-$300 annually), annual report fees ($10-$300), and accounting complexity. Multi-state filings increase tax prep costs by $500-$2,000 annually. Remote formation requires maintaining an address and agent in that state permanently.
  6. Run a 5-year total cost analysis. Multiply annual fees, taxes, and compliance costs by 5, add formation costs. For most small businesses, home state formation costs 20-40% less than Delaware formation plus foreign registration. Choose Delaware if raising institutional capital, Wyoming/Nevada for asset protection, home state for operational simplicity.