When starting a business, you want all the advantages you can get—including tax breaks, flexible corporate laws, and low administrative overhead. Where you decide to form your business can impact taxes, operational expenses, and potential investment. Whether you’re starting a local business or have plans to launch a global empire, where you form your business matters.
If you are starting a regional business to serve local customers, it makes sense to register your operation in your home state. If you have a start-up with larger geographic aspirations and are seeking more market credibility and investors, consider incorporating in Delaware or another business-friendly state for fledgling corporations. A registered agent can help identify the right strategy and the best state to form your company.
Why Investors Like Certain States
Traditionally, Delaware has been the “go-to” state for new businesses looking for capital to incorporate. More than 2 million businesses are incorporated in the state of Delaware, including 67% of Fortune 500 businesses. About 80% of U.S. initial public offerings (IPOs) in 2023 were registered in Delaware.
New businesses gravitate to Delaware because the state has no corporate tax, no sales tax, and usually no state tax for companies doing business outside the state. It also has a business-friendly legal system that protects property rights, efficient and transparent regulations, and an environment that encourages investment with reduced risk of non-performance or opportunistic behavior.
Of course, Delaware isn’t the only business-friendly state. Other states may offer specific tax breaks, incentives, and business laws that work to your advantage. There may be strategic reasons to incorporate outside of your home state, such as more robust liability protection. For example, each state collects information about your business. Some states, such as Wyoming, Nevada, and New Mexico, do not require company ownership data to be made public, offering more privacy. Montana has no sales tax, making it an attractive destination for e-commerce and retail businesses. South Dakota has simple filing requirements, no corporate or personal income tax, and protections that shield personal income and assets from corporate liabilities.
If you are looking for investors or planning to expand operations beyond your home state, where you form your business may be a consideration.
Registering as a “Foreign” Corporation
If you are opening a coffee shop or bike shop, it makes sense to form your company in the state where you operate. You will have to pay that state’s license fees and corporate/income taxes, income taxes, etc., no matter where you register your business. Incorporating in another state would only double the administration fees.
However, if you plan to operate in multiple states or as a national or international company, you can benefit from choosing the right state to register your business. When conducting business in multiple states, you’ll have to register as a foreign corporation in each additional state other than where you formed the company. For example, you might form your corporation in Nevada, but you need to register as a foreign entity to conduct business in other states, such as California, Oregon, and Washington.
Requirements to register as a foreign corporation
- Does the business have an office, warehouse, retail space, or physical presence in another state?
- Will the business conduct in-person meetings with customers or clients in the state?
- Does the business have employees living or working in the state?
The rules can vary greatly and will determine income, franchise, and other tax filings, including reporting income, disclosure of corporate officers, and filing fees. If your business is conducted exclusively online, you may not need a foreign qualification. But if you have employees in other states, you will need to register in each of those states.
The Role of the Registered Agent
Every foreign corporation must also appoint a registered agent as its primary point of contact for government and legal communications. Failure to designate a registered agent can result in fines, penalties, and even the revocation of your right to do business in the state.
A registered agent must have a physical address in the state and receive any state correspondence, lawsuit notices, and legal paperwork on behalf of the company. The registered agent is responsible for ensuring compliance, processing essential documents in a timely manner to avoid missed deadlines and penalties. You can act as your own registered agent, but that makes you responsible for accepting legal documents, filing government paperwork, and being available at any time during business hours. Using a registered agent service saves time and ensures greater privacy, as your personal address will not be a matter of public record.
A registered agent can be invaluable in helping you register your business and navigate the rules and regulations, including foreign qualification requirements. A national firm can serve as a registered agent in multiple states, while local businesses may want to use a local registered agent to handle business filings. Some agents offer additional services, such as virtual office, web hosting, domain registration, email management, backend software, secure document sharing, and more.
Whether you’re opening a local business or launching a startup with national ambitions, understanding where to form your business and the benefits of incorporating in different states can help position you for long-term success. A knowledgeable registered agent can be a critical ally, helping you stay compliant and focus on building your business while they navigate the complex legal landscape across state lines. Evaluate your goals and let a registered agent help you structure your business accordingly—it’s a move that could pay dividends for years to come.
Arty Warren is the Director of Customer Support at Northwest Registered Agent, a Business Identity Service that helps entrepreneurs start businesses quicker than ever, offering corporate formation, domain buying, web hosting, and customer support.
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