If you’re looking for the best state in which to start an LLC or incorporate a business, there are several factors to consider. Many entrepreneurs or startup founders might want to start a business in the state where they already reside. Unless you are going to be investing in real estate in another state, it’s often easier to form an LLC or other business structure in the state where you have your primary residence.
But if you have a choice of which state you want to start your business in, or if you are prepared to relocate to start your company, it might be useful to consider the overall business climate and ease of starting a business in various states across the country.
How to Know Which State to Form Your LLC In
Different states have different strengths and weaknesses when it comes to forming a business. Some states have higher taxes, more complicated compliance regulations or stricter business licensing requirements for small businesses, while others may make it more difficult for you to get access to labor or financing.
The decision of where to start a business is complicated, and often depends on the overall intuition and personal needs of the founder, or the industry-specific economic prospects of the business. For example, if you sell surfboards, you will likely want to locate your business in California or Florida instead of a landlocked state. If you want your business to serve an industry that has a big presence in New York City, you might want to form your company in New York state or New Jersey.
But many other businesses, such as online enterprises or professional services firms, are location-independent and do not need to rely on one specific place to find clients. If you have some flexibility for where to locate your business, you might want to consider the overall picture of which state is the best state for LLC formation.
Best States to Incorporate
Here are a few factors to consider when deciding what is the best state to incorporate your business. This list is not all-inclusive, but these 10 states are considered by experts to be among the friendliest for small business.
1. Texas: Texas was ranked #1 in the WalletHub Best States to Start a Business survey for 2018, ranking highly for Business Environment (#1) and Access to Resources (#12). Texas also got an “A” grade from the Thumbtack.com Small Business Friendliness survey, and was rated particularly highly for “ease of starting a business.”
2. Utah: Utah ranked #2 in the WalletHub survey and scored particularly well for “highest average growth in number of small businesses” and “most accessible financing.” Thumbtack.com rated Utah as #5 overall, with an “A+” grade and high marks for “overall friendliness” for small business.
2. Georgia: Ranked #3 by WalletHub’s survey, Georgia also got an “A” grade from Thumbtack.com’s survey, which noted this state is best for “ease of hiring.”
4. Montana: Big Sky Country is also great for small business. Montana was ranked #4 overall by WalletHub, with high ratings for “business costs.” The state also ranked #4 in the nation for “cheapest office space” and #5 for “highest availability of human capital.” Thumbtack.com gave Montana an “A-” grade overall and an “A+” grade for the state’s tax code.
5. Oklahoma: The Sooner State is ranked #5 in the nation by WalletHub and #1 in overall lowest Business Costs (including a combined measure of cost of living, office space affordability, average insurance premiums per employee, and other factors). Thumbtack.com was less favorable about Oklahoma’s overall business climate, but did give it an A+ grade for “ease of hiring.”
6. Florida: Florida ranks #6 overall from WalletHub, with a #5 ranking for Business Environment and #3 for highest average growth in number of small businesses. Florida also ranks #4 on the Tax Foundation’s State Business Tax Climate Index, which notes that Florida has no individual income tax — so if you start a business in Florida and live there, you might get to keep more of your profits than you would in other states.
7. North Dakota: This Great Plains state has been home to an economic boom in recent years with the discovery of oil and shale gas. North Dakota ranked as the 7th best state for small business according to WalletHub, with a #4 ranking for Business Environment, #1 for highest average growth in number of small businesses, and tied for #1 in most accessible financing. Thumbtack.com’s survey gave North Dakota an overall grade of “A” for small business friendliness, with high marks for the quality of the state government websites — making it easier to get information about business regulations, licensing and other compliance requirements.
8. California: America’s largest state (and largest state economy) is home to Silicon Valley, Hollywood, and many of the nation’s most beloved tourist destinations and iconic scenes. Although California is not a cheap place to live, it still rates as WalletHub’s 8th best state to do business, with high marks for Business Environment (#2) and Access to Resources (#6). However, not everyone agrees with this sunny assessment of California’s small business climate — Thumbtack.com’s survey gave California a “D” grade, with only a “B-” for “ease of hiring.” The Tax Foundation ranked California 49th in the nation — one of the very worst — for its state business tax climate. So if you want to do business in California, beware of the possible costs, hassles and inconveniences — though there are significant upsides to doing business in the Golden State as well, which is why so many thriving and fast-growing companies are located there.
9. Arizona: WalletHub’s survey rated Arizona as the 9th best state to start a business, and Thumbtack.com’s survey gave it an overall grade of “A-” with top marks for “ease of hiring.”
10. Colorado: Colorado has been a fast-growing economic success story in recent years, with many people moving there and starting businesses. WalletHub rated Colorado 10thoverall, with high marks for “most educated population” (#2) and Business Environment (#6). If you need to hire highly educated workers with specialized skills, Colorado might be a good place to locate your business.
As you can see, there is no single “best” state for incorporating your business. It all depends on a variety of factors, such as where you want to live, where your key target markets operate, where you can get access to financing, where you can hire great talent, and where (and whether) a particular place fits into your overall strategic vision for what you want your business to be.
But if you’re trying to decide between two or more different states, consider the full package of advantages, risks and opportunities that each place presents. Hopefully this guide can help inform your decision-making about the best state for LLC formation for your new business.
This article was originally published on the Incfile Blog.
Ben Gran is a freelance writer from Des Moines, Iowa. Ben has written for Fortune 500 companies, the Governor of Iowa (who now serves as U.S. Secretary of Agriculture), the U.S. Secretary of the Navy, and many corporate clients. He writes about entrepreneurship, technology, food and other areas of great personal interest.