Building and growing a business is challenging. A company needs a strong foundation in order to thrive—and that starts with incorporating in the right jurisdiction for your specific circumstances. This raises an important question: How do you decide where to incorporate your business? The answer depends on several factors. In this article, our Santa Monica business lawyer highlights the key things to consider when determining where to incorporate and compares and contrasts the advantages/disadvantages of the most common options for entrepreneurs in California. 

Deciding Where to Incorporate Your Business: A Checklist

As a starting point, entrepreneurs need to understand why the state of incorporation matters. The state of incorporation is effectively the “home” state of the business. Each state has its own set of corporate laws in place. A corporation is formed under the regulations of its state of incorporation. While there are certainly plenty of similarities from jurisdiction to jurisdiction, there are also some very important differences. These differences make it more advantageous for some businesses to incorporate in certain states. Here are the key issues that you need to consider when determining the best state to incorporate your business: 

  • Start-Up and Compliance Costs: Forming a corporation is not free. There are registration (start-up) costs and ongoing compliance costs (annual fees). If you are incorporated outside of your state of residence, you may also obtain a registered agent. 

  • Corporate Taxes: Taxes are one of the primary considerations when determining where to incorporate a business. Depending on the nature of your business, there may be certain tax advantages associated with calling a certain state the home of your business. 

  • Corporate Law Regulations: As noted previously, each jurisdiction has its own body of corporate law. Some jurisdictions—particularly Delaware and Nevada—have a well-developed body of corporate law that can be advantageous for entrepreneurs. 

  • Size and Complexity of Your Business: The size and complexity of your business will play a role in determining where to incorporate. As a general rule, small businesses and businesses without outside shareholders or investors may want to incorporate in their actual home state (California). 

  • State-Based Business Incentives: Depending on the nature of your business, there may be some state-based financial incentives associated with incorporation. As an example, a “green-energy” business may be eligible for tax benefits and/or subsidies. 

Comparing the Three Most Common Options (California, Delaware, and Nevada) 

With 50 states and several U.S. territories, the process of deciding where to incorporate a business can feel overwhelming. The good news is that you can simplify the process. When determining where to incorporate your business, the initial decision is as follows: Do you want to incorporate your company in your home state or in another jurisdiction? For the vast majority of business owners and entrepreneurs in California, there are only two main candidates for incorporated outside of the state: Delaware and Nevada. Here are the most important things to know about the advantages and disadvantages and incorporating in California, Delaware, and Nevada: 

  • Incorporating in California: If you are starting a small business, you may want to consider incorporating in your home state. The primary benefits of incorporating California is that it can be simpler, more efficient, and more cost-effective for many smaller companies. The benefits offered by another state are more limited for closely held corporations and other smaller businesses. Incorporating in another state could add more complexity (and compliance costs) for little tangible benefit. An attorney can help you decide if California is the best choice for the legal home of your business. 

  • Incorporating in Delaware: Though a small state, Delaware remains the most popular place to incorporate a business. According to data provided by the Delaware Division of Corporations, approximately two-thirds of the nation’s Fortune 500 companies are incorporated in the state. There are in excess of 1 million companies incorporated in Delaware—that means there are more corporations that call Delaware their legal home than people that call the state home. Some of the most notable benefits of incorporating a business in Delaware include: 1) A highly flexible body of corporate law, 2) A specialized Court of Chancery that focuses solely on business law matters, 3) Delaware has strong assets protection laws for business owners, and 4) Certain favorable tax regulations for companies with complex investment structures. If you are considering incorporating your company in Delaware, our business law attorney can help. 

  • Incorporating in Nevada: Our neighboring state of Nevada is another one of the most popular states for incorporation of a new business. Similar to Delaware, Nevada offers some tangible benefits that could make it the right place to call the legal home of your business. Some of the notable advantages include: 1) Nevada has no corporate income taxes and imposes no fees on corporate shares, 2) Nevada has strong confidentiality provisions that allow owners/shareholders to retain privacy, and 3) Corporate shareholders can rely on Nevada’s asset protection laws. If you are considering incorporating your company in Nevada, a business law attorney can help you determine if it is the right option.

How Corporate Law Attorney Itai Klein Can Help 

Determining where to form your business is a complicated decision. Our founding attorney Itai Klein is a top business law attorney with extensive experience helping entrepreneurs form new corporations. When you reach out to our Santa Monica law firm, you will have an opportunity to consult with a corporate lawyer who is prepared to:

  • Hear your concerns and answer questions about business formation;

  • Review the advantages and disadvantages of incorporating in a particular jurisdiction; 

  • Handle of the business incorporation paperwork; and 

  • Take all necessary action to put your business in the best position to thrive.

Contact Our California Business Formation Today

At KLEIN.LAW, our Santa Monica corporate law attorney has extensive experience advising entrepreneurs with matters related to business formation. If you have any questions about deciding the best state to incorporate your business, we can help. Give us a call(310) 295-2261 or get in touch with us online for completely confidential consultation. From our Santa Monica law office, we help business owners incorporate in California, Delaware, Nevada, and all other U.S. jurisdictions.