These are the most popular US states for a company to incorporate in
If you’re expanding your business to the US, you’ll know that setting up a subsidiary is a better option than simply opening a branch office. That’s because you’ll limit the liability your company is exposed to, and you will also only pay US tax on the earnings generated in America rather than across your entire business.
However, if you’re going to set up a subsidiary, you’d be wise to first give some careful consideration to which US state to incorporate in.
Unlike the UK (where national laws govern the operation of your business), the USA is a federation of 50 states. Each of these 50 states have their own rules and regulations that govern how you’ll need to structure and operate your business. You’ll find that many of the rules and regulations are roughly the same regardless of the state you choose to incorporate in, but there are some subtle differences that could have a big impact on how your business performs. Here are three of the most popular states to incorporate in.
Incorporate in: Delaware
Delaware is one of the most common states for foreign business to incorporate in. Delaware has a reputation for favouring corporate managers over shareholders, is favourable in terms of taxation (particularly if your business is large or has a complex structure), and directors, shareholders and offices need not be residents of Delaware. The Delaware Court of Chancery is focused entirely on business law, and uses judges instead of juries, which gives businesses lots of confidence in the legal system too. For these reasons, most large businesses incorporate in Delaware.
Incorporate in: Nevada
Nevada is another popular state to incorporate in, and that’s due to the fact that it offers an extremely low rate of taxation. It’s one of the few states in the US that enforces no corporate or individual income tax, and businesses don’t pay tax on corporate shares in Nevada either. It’s also easy to issue shares in Nevada and, like Delaware, business law is straightforward and simple to understand if you do find your business is involved in commercial litigation.
Incorporate in: Wyoming
Wyoming is beginning to become quite popular for businesses looking to incorporate. That’s because it offers many of the same benefits as Nevada, but at an even cheaper rate. Annual renewal fees are cheap, there are no business licence fees and the state’s emphasis on privacy and asset protection is a big draw for many businesses.
While Delaware, Nevada and Wyoming states all offer good reasons to incorporate, bear in mind that may be drawbacks to each, and there’s more to consider than initial set-up fees. For example, if you incorporate in one state but do business in another, you might incur the second state’s taxes and annual payments in addition to the first – so it’s not always the smartest move to simply incorporate in the state with the lowest tax rate if you don’t plan on operating there! Also, foreign businesses should give some thought to transport links (to and from the UK and within the US), climate and geography, access to your target market and differences in the time zone.
Wherever you choose to incorporate, just remember that so long as you form an entity in at least one of the 50 states, you’re permitted to do business in any of the 50 states (subject to certain registration requirements in each state).
Get in touch with us at Foothold America if you need help deciding where to incorporate. Your decision will likely be based, at least in part, on hiring the right US workers, and it’s important you set up in a location where you’ll have access to a workforce that best benefits your business.