My partners and I live in different states. In what state should we incorporate our Internet business?

The process of choosing a state to incorporate an Internet business is not substantially different than choosing where to incorporate a brick and mortar business. You must first ask yourself where you will be conducting all or the majority of your business. You should also consider other business issues such as privacy and tax benefits.

Benefits of Incorporating Locally for Small Businesses

If your online business will be small and somewhat local, consider incorporating in the state where you will do most of your business and consider that your home state. Incorporating in your home state will be less complicated and less expensive. Filing federal taxes will be less difficult than if your corporation were incorporated elsewhere. Furthermore, you will end up filing one state tax return instead of multiple returns.

Incorporating a Large Business

If your business will be larger or you will operate and deliver nationwide, then you may choose to broaden your search. There are drawbacks, such as being required to qualify to register as a foreign corporation in your home state and incur the associated fees and filing requirements. However, some states offer tax and legal advantages that make it worth the effort to incorporate in another state. This makes even more sense if a substantial amount of your business will be carried out in that state or across multiple ones. Two of the most popular states for incorporating businesses of all sizes and types are Delaware and Nevada.

Incorporating in Delaware

Delaware is home to the most favorable business friendly environment for incorporating. It has a Court of Chancery, consisting of judges who hear only corporate law cases. This specialization means court rulings are consistent and there is a sound body of company law. Because e-commerce law is evolving, Delaware’s legal track record gives management, investors, and counsel confidence

Incorporating in Nevada

Along with being a tax-free state, Nevada has several powerful privacy benefits that make it an attractive state for online business incorporation. State law allows for the names of corporate members of the board of directors to be kept off public record. You can do the same with certain types of investors. If privacy is a huge concern, then you may consider the best state to incorporate in is Nevada. Ultimately, the right state in which to incorporate depends on you, your business needs, and your individual situation.