Where should I set up my business?
Now that you have decided to form an LLC or Corporation, the next step is to determine to either set it up in your home state (physical location) or choose another state. This is a decision you should not make lightly or do it because "someone" said it was a good idea without investigating how it will effect you and your business specifically.
For most small businesses there are two factors to considered when deciding where to form your LLC or Corporation:
- Cost of forming in your home state vs. the cost of forming in another state and foreign registering to do business in your home state.
- Taxation & Requirements of both states of registration.
1. Home state incorporation vs. foreign registration
If your business is owned by one or a couple members/shareholders and its primary business activity is conducted within your home state it is typically most efficient to register in your home state. This is usually more cost effective than registering your entity in another state and then registering as a foreign entity to do business in your home state.
2. Requirements and taxation
Before registering in a foreign state it’s a good idea to research that state’s ongoing business requirements as well as general state taxation requirements. A company that foreign registers to do business in another state is subject to filing taxes and annual report fees in both states.
Another factor to be aware of is the potential of litigation in each state you are registered to do business in.