For years, Delaware and Nevada have been the “it” states for small business incorporation and with good reason. Both states offer up many benefits to doing business: Delaware enables the owners of a corporation to limit the amount of information available about them, and Nevada offers favorable tax treatment for corporations.
Lately, we’re noticing lots of companies being formed in South Dakota, Texas and Wyoming. Could these states be the new “corporate darlings” for entrepreneurs?
Below, we investigate what it is about this up-and-coming trio that appeals so much to small business owners.
If South Dakota is vying to become a corporate darling, one of its biggest selling points is undoubtedly found in its tax laws. The Mount Rushmore State has no income tax (neither corporate nor personal) or any enforced capital gains tax. There’s also an ease in filing requirements, with few instead of frequent requirements necessary for businesses to stay in compliance.
Despite these benefits, one of South Dakota’s biggest setbacks is its slow economic growth. Business News Daily reported that since 2009, South Dakota has only experienced one year of economic growth above two percent.
Slow growth aside, the state has one of the lowest unemployment rates in the country, which is good news for small businesses starting up that are looking to attract sales from frequent shoppers.
Ranked number four by GOBankingRates as the best state to do business in, Texas boasts plenty of metropolitan areas perfect for every entrepreneur’s personality. According to the Kauffman Index of Growth Entrepreneurship, Dallas ranks sixth for emerging growth IPO density, while Austin has swept four of the five industries of high-growth firms, including advertising and marketing, business products and services, health and software.
Why does a metropolitan area matter? The Kauffman Foundation’s State of Entrepreneurship 2017 report states that one of the three mega trends reshaping entrepreneurship in America is the “rise of the rest.” Essentially, this means startups launching beyond the geographical landscape of Boston and Silicon Valley. Located neither on the East or West coast, the Lone Star State’s urban landscape is an entrepreneurial advantage with more business formations in cities than rural areas.
As far as incorporation benefits go, Texans also enjoy no personal income taxes and state regulations that are easy to navigate along with paying a one-time formation fee to form an LLC or corporation. Raising capital is the one area that proves to be a bit of a challenge, but not to worry — more than most states, Texas offers access to loans with lower business taxes.
Voted the number one best state to start a business, Wyoming has no corporate or personal income taxes (à la South Dakota), franchise tax or enforced capital gains tax. As stated by Grasshopper, entrepreneurs that form corporations in the Cowboy State are only responsible for federal income taxes. Ultimately, this allows entrepreneurs to keep more of their earnings and even enjoy tax exemptions on purchases like gas and groceries.
Business incorporation summary
So, where do you go next? Now that you know some of the hidden benefits these states offer small businesses, it’s important to note that most entrepreneurs form corporations in their home state. Depending on where you live, this could be Texas. It could be Delaware or Nevada or another state entirely, like California or Arkansas.
If you do business primarily in one state and incorporate in another, you might have to pay taxes in two different states instead of one. After all, incorporating in Wyoming won’t keep you from paying state income taxes in New York, if you operate a business there! If your home state is ultimately the one where you want to run your business, that state might just be the “corporate darling” you’ve always wanted.