Where you incorporate decides which state's corporate law governs your company, which fees you pay every year and what investors will think when they look at your cap table. It usually doesn't decide where you pay income tax. That depends on where the business operates and where its owners live.
This guide compares the three common choices, a Delaware C corporation, a Wyoming or Nevada LLC and your home state, for US founders and non-US founders, with the real costs in 2026.
The short answer
| Your situation | Usually best |
|---|---|
| Raising venture capital or angel money | Delaware C corporation |
| Issuing stock options to employees | Delaware C corporation |
| Profitable small business, no outside investors | LLC in your home state |
| Non-US founder selling online, not raising | Wyoming or Delaware LLC |
| Non-US founder planning to raise from US investors | Delaware C corporation |
| Holding company or real estate with no home-state operations | Wyoming or Nevada LLC |
Annual cost comparison
The table compares state fees for a small company in the first year and each year after. It excludes registered agent fees, which typically cost $50 to $300 a year when you form outside your home state.
| Entity | Formation fee | Annual state cost | Notes |
|---|---|---|---|
| Delaware C corporation | $89 minimum | $450 ($400 franchise tax + $50 report) | Assumes the assumed par value capital method |
| Delaware LLC | $110 | $400 | Flat LLC tax from the 2026 tax year |
| Wyoming LLC | $100 | $60 | Higher only if Wyoming assets exceed $300,000 |
| Nevada LLC | $425 | $350 | Includes the $200 state business license |
| Texas LLC | $300 | $0 | Franchise tax report still required |
| California LLC | $70 | $800+ | $800 annual tax plus a fee above $250,000 of receipts |
| Florida LLC | $125 | $138.75 | Annual report |
See LLC fees by state for all 50 states.
Option 1: Delaware C corporation
Most venture-backed US startups are Delaware C corporations. The reasons are legal and practical, not tax:
- Investors expect it. Venture funds, accelerators and their lawyers use Delaware documents by default. A company formed elsewhere often has to convert before a priced round.
- Corporate law is predictable. Delaware's Court of Chancery hears business disputes without juries and has decades of precedent on fiduciary duties, mergers and stockholder rights.
- Stock options and preferred stock are straightforward, with well-tested forms.
- QSBS. Only C corporation stock can qualify for the Section 1202 exclusion. For stock issued after July 4, 2025, founders and investors can exclude 50% of the gain after three years, 75% after four and 100% after five, up to $15 million per company, if the company's gross assets were $75 million or less when the stock was issued.
What it costs
A Delaware corporation pays the franchise tax every year, whether or not it makes money. Startups that file using the assumed par value capital method typically pay the $400 minimum plus a $50 annual report fee. Those that don't report their gross assets are billed under the authorized shares method, which is $85,165 for 10 million authorized shares. See the Delaware franchise tax guide for how to calculate it.
A Delaware corporation that doesn't do business in Delaware doesn't pay Delaware's 8.7% income tax. It pays the 21% federal corporate tax and income tax in the states where it operates, and it must register as a foreign corporation in those states.
The downside
A C corporation is taxed twice: the company pays 21% federal tax plus state tax on profit, and shareholders pay tax again on dividends. For a startup reinvesting everything and losing money, this rarely matters. For a profitable small business distributing profit, it usually costs more than an LLC or S corporation. See state corporate tax rates for combined rates.
Option 2: Wyoming or Nevada LLC
Wyoming and Nevada are marketed as the best states to form an LLC: no state income tax, privacy for owners and strong charging order protection for members' interests.
Wyoming is the cheaper of the two: $100 to form and a $60 annual report license tax for most small LLCs. Nevada costs more, at $425 to form including the initial list and state business license, and $350 a year after that.
Where these states make sense
- Owners with no US home state, such as non-US founders selling software or services online.
- Holding companies that own other companies, intellectual property or investments.
- Businesses that genuinely operate in Wyoming or Nevada.
Where they don't
If you live and work in another state, your LLC is doing business there. You'll have to:
- Register it as a foreign LLC in your home state and pay that state's fees every year.
- Pay your home state's income tax on the profit.
- Keep paying a registered agent in Wyoming or Nevada.
A California resident with a Wyoming LLC pays Wyoming's $60, a Wyoming registered agent, and California's $800 annual LLC tax. Forming in California would have been cheaper.
Option 3: your home state
For most small businesses without outside investors, forming an LLC where you live is the cheapest and simplest option. You pay one state's fees, use one registered agent (often yourself) and file one annual report.
Your home state's taxes apply either way, so check them before deciding on an entity type:
- No income tax on pass-through profit: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Some still tax businesses through franchise, excise or gross receipts taxes.
- Entity-level LLC taxes: California's $800 minimum, Tennessee's excise and franchise taxes and Texas's franchise tax above $2.65 million of revenue.
See state income tax rates for business owners and each state guide.
Non-US founders
Non-US founders often form a US company to open a US bank account, use Stripe, sell to US customers or raise from US investors. Delaware and Wyoming are the usual choices, and neither taxes a company that does no business in the state. The federal rules matter far more than the choice of state.
LLC owned by a non-US person
A single-member LLC owned by a non-US person is a disregarded entity for US tax purposes. Key points:
- Form 5472. The LLC must file Form 5472 with a pro forma Form 1120 every year to report transactions with its owner, even if it has no income. The penalty for not filing is $25,000.
- US tax depends on activity. If the business isn't engaged in a US trade or business, for example a founder selling software from abroad with no US office, employees or dependent agents, its profit may not be subject to US income tax. Profit that is effectively connected with a US trade or business is taxed at graduated rates, and the owner must file a US return.
- Home-country tax. Your country of residence may tax the LLC's profit directly, and some countries treat a US LLC as a company rather than a transparent entity. Check before forming.
C corporation owned by a non-US person
A Delaware C corporation pays 21% federal tax on its worldwide profit, plus state tax where it operates. Dividends paid to non-US shareholders are subject to 30% withholding, often reduced by a tax treaty. A C corporation is the right choice if you plan to raise from US investors or apply to accelerators, which almost always require one.
Beneficial ownership reporting
Since March 2025, FinCEN's beneficial ownership reporting rules apply only to companies formed outside the US and registered to do business in a US state. Companies formed in a US state, including those owned by non-US founders, are currently exempt.
Delaware, Texas or Nevada for larger companies
Some companies have reincorporated from Delaware to Texas or Nevada since 2024, citing Delaware court decisions on executive pay and controlling stockholders. Texas opened a specialized business court in September 2024, and Nevada's statute gives directors strong protection from liability. Delaware amended its corporate law in March 2025 to add safe harbors for transactions involving controlling stockholders.
For an early-stage startup, this debate matters less than what your investors expect. Most funds still prefer Delaware, and reincorporating later is possible but costs legal fees.
How to decide
- Will you raise equity from investors? Yes: Delaware C corporation.
- Do you live in the US? Yes, and not raising: LLC in your home state.
- Non-US founder, not raising? Wyoming LLC for lowest cost, Delaware LLC if you want a better-known name; budget for Form 5472 every year.
- Already profitable as an LLC? Consider an S corporation election to cut self-employment tax, if you're a US citizen or resident. Non-US persons can't own S corporation shares.
Then estimate your total tax with the United States calculator or compare the best countries for startups.
Frequently Asked Questions
What is the best state to incorporate a startup?
If you plan to raise venture capital, a Delaware C corporation. Investors, lawyers and standard financing documents expect it. If you're building a profitable small business without outside investors, forming an LLC in the state where you live and work is usually cheapest and simplest.
Is Wyoming better than Delaware for an LLC?
For a small LLC that doesn't operate in either state, Wyoming is cheaper: $100 to form and $60 a year, against $110 and $400 a year in Delaware. But if you live and work in another state, you'll usually have to register there too, which removes most of the saving.
What is the best state for a non-US founder to form a US company?
Delaware for a C corporation you plan to raise money with, and Wyoming or Delaware for an LLC. Neither state taxes a company with no operations there. Federal tax rules matter far more than the state: a foreign-owned single-member LLC must file Form 5472 each year or face a $25,000 penalty.
Do I avoid state income tax by incorporating in Delaware, Wyoming or Nevada?
No. Income tax follows where the business operates and where the owners live, not where it is formed. A California business formed in Wyoming still pays California tax and California's $800 minimum tax or LLC tax.
Should a startup be an LLC or a C corporation?
A C corporation if you plan to raise venture capital, issue stock options or qualify for the Section 1202 QSBS exclusion. An LLC if you want pass-through taxation, simple administration and don't plan to raise equity from funds.
Why are some companies leaving Delaware for Texas or Nevada?
Some founders and boards cite recent Delaware Chancery Court decisions, litigation risk and lower costs. Texas created a specialized business court in 2024 and Nevada has a business-friendly corporate statute. Delaware responded with amendments to its corporate law in 2025. Most venture-backed startups still incorporate in Delaware.
How much does it cost to keep a Delaware C corporation each year?
For a typical startup that files using the assumed par value capital method, $400 of franchise tax plus a $50 annual report fee, plus a registered agent at $50 to $300. Companies that don't report their gross assets can be billed $85,000 or more under the authorized shares method.