Which states are the best and worst to incorporate a small business? I’m often asked this question, since I’m the CEO of a company that helps entrepreneurs incorporate their startups. I set out today to write a post about this topic, but realized that I couldn’t do it. If you want to start a business, the “best” and “worst” states for incorporating evolve each year.
Wyoming was number one in 2016, North Carolina took the lead in 2017, and Iowa ranks first in 2018. Numerous factors contribute to each state’s “startup friendliness.” Some of these include the quality of life, tax laws and tax codes, educated workforce, regulations, and overall ease of starting a business.
Seeing new states shift to first place each year is a great thing. It means that states are adopting new practices and processes that make it easier to start a business. As such, I can’t say with complete certainty which is the “best” or “worst” state for any one company. What I have observed, however, is that certain states are popular with entrepreneurs when they decide to start and incorporate their companies. Let’s take a look at them — you might be surprised by the results!
Delaware has long been one of the most popular states for entrepreneurs to file and incorporate physical or out-of-state businesses. Why is that, exactly? It all connects to the state’s “tax haven” nickname. Active brick and mortar storefronts do not need to collect sales tax on purchases while out-of-state businesses don’t have to pay corporate income tax.
With over one million entities incorporated in Delaware, the state has extended its benefits to go beyond taxes. There has been an overall commitment to increasing transparency within businesses. Delaware corporations must now disclose the names and addresses of their directors on their annual franchise tax reports for public records. Perhaps a lesser-known, but extremely valuable, resource resides at the State of Delaware’s Court of Chancery. If your business is experiencing an issue with business law, the court can assist you in resolving it with their skilled jurisdiction.
This August, Go.Verizon.com ran a study about the best small cities to start a small business. Within their top 10 were three small cities in Florida — Weston, Delray Beach and Kissimmee. Beyond these small cities, bigger ones like Miami are equally attractive to entrepreneurs. Florida boasts the second-highest density of startups in the United States, thanks to its wildly popular tourist location, funding, grant resources and quality of life.
Beyond the rays that “the Sunshine State” can provide entrepreneurs, tax perks abound when incorporating in Florida. The State of Florida is noteworthy for having one of the lowest tax burdens in the United States. There is no state or personal income tax. Florida collects sales tax (at a 6 percent rate), and corporate income tax for corporations that do business and earn income in Florida.
In 2016, the Stanford Latino Entrepreneurship Initiative released a report called the State of Latino Entrepreneurship 2016. This report revealed that nearly 60 percent of Latino firms are located in California, New York, Florida and Texas.
It’s not surprising to see these entrepreneurs flock to Florida, where the tax burdens are low, the small business grants are in abundance and the skies are sunny. But what about Texas?
This state is ranked by Thumbtack.com for having an A+ in 2018’s Small Business Friendliness Survey, with A’s and B’s across the board for ease of starting a business, licensing and its tax code. Entrepreneurs who reside in Texas do not have to pay personal income taxes and enjoy plenty of access to loans and grants to fund their companies.
The “best” state for incorporating your business is a personal choice based on you and your particular business. However, consider taking into consideration the above rules and regulations when starting up.