When forming an entity in the United States, your choice of state can have a lasting impact on your business’s tax obligations, privacy, legal protections, and operating costs. You can incorporate a business in any state, but certain jurisdictions stand out for their favorable corporate laws, efficient bureaucracy, and cost advantages.
In this article, we’ll explore the best jurisdictions to form a legal entity—particularly LLCs and corporations—with a deep dive into three of the most popular choices: Delaware, Wyoming, and Nevada. We will also mention a few other lesser-known (but business-friendly) U.S. states.
Delaware
Delaware has long been the state of choice for Fortune 500 companies and startups alike. Over 60% of U.S. publicly traded companies and more than 1 million business entities are incorporated there. Why?
Legal Framework:
- Chancery Court: Delaware has a specialized court dedicated to corporate law, with judges—not juries—resolving disputes. This results in faster decisions and more consistent legal interpretations.
- Established Legal Precedent: Delaware’s extensive body of case law offers predictability, which is especially important for larger businesses and investors.
- Business-Friendly Statutes: The state’s corporate statutes are flexible and modern, designed to accommodate businesses of all sizes.
Privacy:
While Delaware requires a registered agent and registered office, it does not require you to list the names of LLC members or corporation shareholders in public records. Additionally, Delaware does not participate in the IRS taxpayer information sharing agreement.
Taxes & Fees:
- Incorporation Fee: Starting a business in Delaware is quite affordable. Incorporation costs start at $109.
- Annual Report Fee: To maintain your Delaware corporation, you will need to file an annual report with the Division of Corporations. The filing fee is $50 for domestic corporations and $125 for international ones.
- State Corporate Income Tax: Delaware does have a corporate income tax, which taxes your in-state business’ profits (sales revenue minus costs of doing business). Currently, the tax rate is 8.7%. It is important to note that Delaware does not tax profits from out-of-state operations.
- State Gross Receipts Tax: This tax is levied on companies that sell goods or render services within the state. If you have a place of business or generate substantial revenue in Delaware, you should expect to pay the tax. Rates range from 0.09% to 1.99% of total gross revenues, depending on your business activities.
- Annual Franchise Tax: Whether you do business within the state or not, you have to pay for the right to incorporate and exist as a Delaware entity. LLCs pay a flat annual fee of $300. For corporations, franchise tax can range from $175 to over $200,000 depending on the number of shares and valuation method used.
- No Sales Tax
Delaware Is Best Suited To:
Medium-to-large companies, businesses with complex ownership structures, and startups that are planning to raise venture capital or attract investors.
Wyoming
In recent years, Wyoming has emerged as a favorite for solo entrepreneurs, digital nomads, and small businesses seeking low-cost, high-privacy incorporation options. You can form an LLC online in minutes, and you are not required to list your physical address (as long as you use a registered agent).
Legal Framework:
Wyoming’s legal system does not have the same level of specialization or established precedent as Delaware’s Chancery Court. However, its corporate laws are fairly straightforward and accessible for businesses. It has laws to protect business owners from personal liability and shield company assets from creditors.
Privacy:
Wyoming does not require LLC member or manager names to be disclosed in public filings.
Taxes & Fees:
- Incorporation Fee: $100 if you create a for-profit entity such as a corporation, limited partnership, or LLC.
- Annual Report Fee: This fee, also referred to as the “Annual License Tax,” is paid to the Wyoming Secretary of State to keep your entity in good standing. Currently, the minimum fee is $60. However, you will pay additional fees if your entity has more than $250,000 in assets in Wyoming. You will have to pay 0.0002 times the value of the company’s assets located in the state.
- Sales Tax: Wyoming does levy a tax on the sale of goods/services. Currently, the state sales tax rate is 4%.
- No Franchise Tax
- No Corporate or Personal Income Tax
- No Gross Receipts Tax
Wyoming Is Best Suited To:
Solo founders, small startups, and online business owners.
Nevada
Nevada used to be an attractive option because of its strong privacy protections and lack of state income tax. However, it has decreased in popularity over the years due to rising fees and regulatory burdens.
Legal Framework:
Nevada is considered to have liberal corporate laws that are designed to benefit business owners. Legal decisions are not as predictable as they are in Delaware.
Privacy:
The state does not require the names of LLC members or managers to be publicly recorded.
Taxes & Fees:
- Incorporation Fee: If you form an LLC, you will be required to pay $425 ($75 for the Articles of Organization, $150 for the Initial List of Members, and $200 for Business License Registration). Fees for corporations range from $75 to $35,000 based on the value of the total number of authorized shares stated in the Articles of Incorporation. A business license for a corporation costs $500.
- Annual Fee: To keep an entity in good standing, you must submit an annual list to the Nevada Secretary of State and renew your business license. LLCs must pay $350 ($150 for the Annual List of Managers and $200 for Business License Renewal). If you own a corporation, you will be required to pay at least $650 depending on the total number of authorized shares ($150 for the Annual List of Officers/Directors and $500 for Business License Renewal).
- Sales Tax: Nevada charges a 6.85% sales tax for in-state transactions.
- Commerce Tax: If your business has gross receipts of over $4,000,000 you will have to pay commerce tax. Nevada charges between 0.05% and 0.33% of gross revenue, depending on your industry.
- Modified Business Tax: This is a payroll tax imposed on businesses operating within the state. The first $50,000 of employee wages is exempt. After that, gross wages will be taxed at 1.17%.
- No Corporate or Personal Income Tax
- No Franchise Tax
Nevada Is Best Suited To:
Businesses in privacy-sensitive industries, such as tech and e-commerce. However, they have to be willing to pay higher fees for similar levels of protection.
While Delaware, Wyoming, and Nevada dominate the conversation, a few other states are worth mentioning when it comes to forming legal entities.
New Mexico:
New Mexico is an attractive option, especially if you are looking to form an LLC. It is one of the cheapest states to form a pass-through entity, and it does not require disclosure of LLC members. New Mexico is unique in that it does not require any ongoing reports or filings for LLCs.
Florida:
If you are looking for a pro-business environment, Florida is a contender. It is ideal for pass-through entities because there is no state personal income tax. If you are concerned about privacy, please note that Florida does require that LLC member names be disclosed.
Texas:
Texas has no state income tax — for individuals or corporations. Thus, it is a good setting for businesses that operate within the state. Additionally, the state has a high threshold when it comes to franchise tax. Currently, entities whose total annual revenue is less than $2.47 million pay no franchise tax.
There is no one-size-fits-all approach to entity formation. The right state depends on your business goals, size, structure, and need for privacy. Please conduct your own research and consult qualified professionals before proceeding with incorporation.
If you are looking for more content related to American companies, please read our article Banking For Foreign-Owned U.S. Businesses.