Despite recent economic downturns, many Americans have kept their dreams of starting a successful company alive. Most American citizens are optimistic about starting new business ventures despite the daunting risks involved. According to Guidant Financial, over 70% of small businesses have reported profits month after month. Moreover, the past few years have seen happiness and confidence indices rankings skyrocket. This is a clear sign that America is moving in the right direction in terms of entrepreneurship.

Before starting a new business, aspiring entrepreneurs should consider various factors that will favor them when taking their companies off the ground. Building a successful company is much more than being a hardworking and dedicated entrepreneur. One needs to consider things such as the company’s mission, its corporate structure, and its business model. That said, the most important thing to consider when setting up a new company is its location. Understanding a state’s economic market and its business ecosystem saves potential entrepreneurs a lot of unnecessary hassles in the future.

To make the best decision when determining which states are the best to start a company, certain dynamics that shape business ecosystems and their effects on aspiring entrepreneurs have to be considered. Taking such factors into consideration is crucial because business regulations and other related requirements widely vary from state to state.

It’s without a doubt that making a decision about where you should start your new company is overwhelming. For this reason, we have compiled a list of the best states to start a company and which states allow holding companies.

Factors considered when determining state rankings

To determine the most favorable state to start a company, aspiring entrepreneurs should consider the following factors:

• The growth rate of the working-age population within the past five years.
• Business tax climate.
• Employment statistics such as the unemployment rate and the labor force participation.
• The hourly rate of real labor compensation and the cost of living.
• 1-5 years business survival rate.
• Economic statistics e.g. GDP growth rate. 

Best states to form holding companies

When considering which state is the most favorable to start a holding company, the most prudent thing to do is examining the laws of each jurisdiction. Choosing business-friendly states with better tax advantages will tremendously favor your company’s profits.

What’s a holding company?

A holding company, also known as an umbrella or parent company, can either be a limited liability company or a corporation. Holding companies don’t conduct business operations, manufacture products, nor sell any services or products. Holding companies own controlling share percentage in other companies known as subsidiaries. They are mainly created to hold stocks, property, and assets. On the other hand, subsidiaries don’t own assets in question. Instead, they take care of administrative duties.

Aspiring entrepreneurs need to familiarize themselves with IRS rules and regulations that state what type of business can own another business. For instance, limited liability companies can own C corporations if they elect corporate tax status. However, LLCs cannot own corporations.   

Before forming a holding company, aspiring entrepreneurs should consider if they will work and live in the same state. While it is possible to form foreign entities, doing so is more expensive and requires extensive filing. It is also important for aspiring holding companies entrepreneurs to note that unless they have offices in foreign states, they will be subjected to tax regulations and requirements in the states they are located. That said, anyone considering to start a company or to move a holding company should consider the following states: 

I. Delaware

Delaware’s business tax climate is conducive and its market opportunity share highly favors new entrepreneurs. The fact that it has a high productivity score makes it attractive to potential investors. The state of Delaware also allows investors to incorporate their companies and receive tax benefits without operating their business in Delaware or becoming a resident of the state. This factor makes it possible for the investors to limit their liability hence protecting their hard-earned assets.

Additionally, Delaware is a business haven because its attorneys and judges are skilled and knowledgeable in commercial and business law. Lawsuits that involve corporations in the state of Delaware are resolved by experienced judges rather than juries made up of laypeople. This assures investors that the fate of their companies will be in safe hands in case of a law suit because fair and professional legal minds will handle their case.

The advantages of starting a company in Delaware

2. Flexibility

The benefits of starting a holding company in Delaware are numerous. They offer businesses unsurpassed flex for aspiring entrepreneurs to set up their organizations. As mentioned earlier, directors and officers of companies established in Delaware don’t have to live in the state to serve their businesses. Moreover, one can individually operate his or her business in Delaware without the need to hire at least three officers and directors as required by other states.

2. Enhanced privacy  

Delaware doesn’t require aspiring entrepreneurs to disclose crucial information about their officers and directors when starting their business. This makes it a conducive environment for those who value their privacy.

3. A savvy court system

Delaware deals with corporate issues in a very professional manner. If a corporate lawsuit arises, it is dealt with experienced judges instead of juries that are mainly made up of laypeople. Companies that choose to settle their differences in court experience a streamlined process that is fair and impartial.

4. Tax advantages

The state of Delaware has one of the most business-friendly tax laws in the United States. Those who start companies in Delaware but have their companies’ headquarters in different states don’t need to pay state income taxes.

II. Nevada

Current economic conditions strongly indicate that Nevada is among the best states to start a company. At the moment, it has the best startup activity score in the United States. Companies established in Nevada can exchange stocks for capital, services, personal property, and real estate. Besides Nevada limiting the veil-piercing principle, it doesn’t tax corporate dividends and neither does it enforce corporate or individual income tax. It also has one of the best commercial law courts that handle suits swiftly meaning that legal expenses are greatly reduced. 

The advantages of starting a company in Nevada 

1. No state taxes

Most people who start companies in Nevada benefit from not paying state taxes. Other than corporate income tax, there is tax freedom for all types of taxes. Those who start their companies don’t have to pay gift tax, admissions tax, personal income tax, estate tax, unitary tax, income tax, and franchise tax on their income.

2. Heightened asset protection

Individuals who start their companies in Nevada don’t have to be liable for the losses of their company. Even though establishing a limited liability company in any state protects members from personal liability, most states have laws that can be used as loopholes to make such entrepreneurs liable for damages caused or losses incurred by their companies. In Nevada, entrepreneurs aren’t required to list the assets of the company to the state- they can only do so for the federal government. Such anonymity allows investors to protect their assets and privacy when incorporating in Nevada. 

3. Enhanced privacy

Like Delaware, Nevada is suitable for investors who want to protect their privacy. For incorporation, companies don’t have to list their owners’ names. Investors can remain anonymous in operating companies. To do so, all they have to do is to get in touch with attorneys who will handle their details. Additionally, Nevada lawyers can go on record on behalf of the investors’ business.

4. Foreign entity registration

Anyone can form a company in Nevada even if he\she doesn’t live in the state. The same applies to people who wish to start a company whose operations aren’t run in Nevada.

III. Wyoming

Wyoming is considered the best state to start a company. It was the first state to allow people to form corporations; it granted permission for LLCs back in 1977. Wyoming has a conducive business climate for startups for various reasons. For starters, it doesn’t have gross receipts tax, individual income tax, and corporate income tax. Additionally, it has one of the best sales tax rates in the U.S. Statistics indicate that the state of Wyoming has a good business survival rate as well as a very strong startup activity score. More companies are created compared to those closing down.

Advantages of starting a company in Wyoming

1. Business incentives

Wyoming’s government offers various incentives to companies that register there. It has a low yearly report filing fees ($100 per annum). Moreover, it doesn’t have franchise tax for companies or corporate state income tax. The tax sales at the state of Wyoming are 4% (with exemptions for similar purchases and manufacturing equipment). Lastly, Wyoming doesn’t collect personal income tax.

2. Flexibility

Companies registered in Wyoming are flexible in terms of management because people who run them on a daily basis have to be identified during the registration process.