Key Takeaways

  • The best state to start a company depends on factors like tax climate, cost of living, regulatory environment, and labor market conditions.
  • Delaware, Nevada, Wyoming, Texas, and Florida consistently rank high for business-friendliness due to low taxes and flexible legal structures.
  • States with no or low corporate income tax—such as South Dakota and Wyoming—offer major savings for startups.
  • Entrepreneurs should weigh business formation costs, industry ecosystem, and local incentives before choosing where to register their company.
  • Quality of life, access to skilled labor, and proximity to target markets are increasingly influencing where founders choose to locate their businesses.

What Is the Best State to Start a Business?

The best state to start a business is one where conditions are conducive for the inception of a new business with office space available at affordable rates, cash accessibility, and human capital. Before starting a business venture, knowing the circumstances that are present, like the potential pool of work-ready employees, the tax-friendliness of the region, and having preparedness for conditions that could occur during the company's operation is vital.

Some jurisdictions require that businesses, particularly in specific industries, have a business license to operate. It goes without saying that it takes more than passion and motivation to obtain one. Although, much can be said about burning ambition, having clear notions about the expectations, responsibilities, procedures, and risks going into a startup is more critical to success and sustainability. 

According to recent economic reviews, the U.S. economy is currently in a state that is welcoming to entrepreneurs and people who want to build a foundation for a new business. After all, it is the American dream. It is just extremely important that you have your steps ordered according to the specific requirements of your state. The U.S. Bureau of Labor Statistics reports that approximately a fifth of all new businesses fail to make it as a company past 12 months. 

Factors That Make a State the Best Place to Start a Company

When choosing the best state to start a company, entrepreneurs must consider more than the initial cost of registration. Key factors include the ease of doing business, tax structure, legal protections, and access to resources like funding and skilled workers.

Some states—like Delaware and Nevada—are known for their strong corporate laws and privacy protections, while others, like Texas and Florida, offer low taxes and growing economies. The right choice also depends on whether you plan to operate locally or nationwide. For example:

  • If you plan to hire employees or open offices in a specific state, you’ll likely need to register there regardless of where you form your business.
  • If you’re an online business or consulting firm, you might benefit from forming in a state with minimal regulatory burdens and low fees.

Ultimately, the best state balances affordability, legal advantages, and growth opportunities—all of which can vary by business type and long-term strategy.

Seven Critical Factors That Influence a State's Business Climate 

Starting a business means adapting to changes and remaining flexible in relationships, which are constantly evolving and affecting one another throughout various dimensions. The business climate and the business ecosystem are basically comprised of elements that when active and conjoined, can either fortify a startup or wear one out if it does not have a firm foundation. Below are the components of a state's business climate. 

  • Startup activity 
  • Small business employees 
  • Survival rate 
  • Productivity 
  • Potential employees' education level 
  • Business tax climate 
  • Cost of living

Startup activity - This includes the following: 

  • The number of startups for every 1,000 firm populace or what is also known as “the startup density.”   
  • Fresh businesses that form due to foreseeable opportunities in the market or what gets referred to as the state's “opportunity share.”   
  • The degree to which small businessmen and women open up a firm in each state.

Small business employees - The present amount of small business employees there are in proportion to the regional community and the number of little businesses currently in operation determine how pronounced small businesses are in the state. 

Survival rate - This represents the ratio of how many firms terminate against the number of them that get started.

Productivity - Every sovereignty in this nation has its own per capita level of total native product, gross domestic product, or GDP.

Level of education completed by potential employees - This refers to the segment of society finishing a degree in higher education.

Business tax climate - The state's tax structure can more or less be business-friendly.

Cost of living - This refers to the affordability of maintaining residency in a state.

Updated Criteria for Evaluating Business-Friendly States

While traditional factors like tax climate and startup activity remain critical, recent trends have added new dimensions to how experts evaluate the best states for business. According to recent analyses from Stripe and Workwell Global, the following factors now weigh heavily:

  • Business Costs: Average commercial rent, labor costs, and energy expenses.
  • Access to Capital: Availability of venture funding and small-business loans.
  • Regulatory Environment: Ease of compliance with labor, licensing, and environmental laws.
  • Infrastructure and Connectivity: Quality of broadband, transportation, and logistics support.
  • Innovation Ecosystem: Presence of universities, incubators, and R&D incentives.
  • Talent Availability: Migration trends, cost of living, and state-level workforce development programs.
  • Economic Stability: Resilience to inflation and long-term GDP growth rates.

For instance, Texas and Florida score high in job growth and infrastructure investment, while Massachusetts and Colorado stand out for innovation and access to skilled labor.

Five of the Best States To Start a Business in 2017 

  • South Dakota notably has the most exceptional business survival rate, second best tax climate in the nation, and fourth best opportunity share and small business employee percentage. 
  • Wyoming has the country's best rate of startup activity and business tax climate, less than the average cost of living, and elevated percentage of small business employees. 
  • Nevada has an incredibly high startup density, ranks second in the U.S. for opportunity share, but presents the lowest number of small business employees. 
  • Florida has the second-highest startup density nationwide, with fair business taxation, but its GDP is sub-par. 
  • Montana delivers favorably in the areas of business tax climate, cost of living, and sits in the top tier of new entrepreneurs in startup activity.

Best States To Start a Company in 2025

Recent rankings show a dynamic shift in the best states to start a company, reflecting post-pandemic migration, tax reforms, and the rise of remote work. Here are some of the top contenders in 2025:

  1. Delaware – Known for its flexible corporate laws, Court of Chancery, and strong investor confidence, Delaware remains the most popular choice for incorporation among U.S. companies.
  2. Nevada – Offers no corporate or personal income tax and strong privacy protections for business owners.
  3. Wyoming – Similar to Nevada but with lower annual fees, no franchise tax, and simple filing requirements.
  4. Texas – Combines a large labor force, no personal income tax, and a thriving startup ecosystem, particularly in Austin and Dallas.
  5. Florida – Features a business-friendly tax climate, booming population, and strong support for small businesses and entrepreneurs.
  6. South Dakota – Maintains one of the lowest business tax burdens in the nation and consistently ranks among the top states for business survival.
  7. Colorado – Recognized for its innovation-driven economy, skilled workforce, and strong support for tech startups.

States like Utah, North Carolina, and Georgia are also gaining attention for combining affordability, rapid growth, and access to talent.

The Four Worst States to Have a Startup Business for 2017

  • Maryland has one of the top 10 highest GDP in the U.S., but the business climate for the state is dismal, with low ranking for opportunity rate and business tax climate. 
  • Rhode Island has a little number of small business employees, also a minimal amount of new entrepreneurs and cellar-dwelling overall startup activity. 
  • Hawaii is on record as being the state with the highest cost of living and nearly the lowest percentage of availability to college graduates to make for highly educated employees. 
  • In Wisconsin, the rate of residents here becoming entrepreneurs averages monthly at barely above two-tenths of a percent, and the state has the absolute lowest opportunity share.  

States With Challenges for Startups in 2025

Not every state offers the same advantages for new businesses. Some regions face higher taxes, cost of living, or stricter regulations that can make launching a company more difficult. In 2025, the following states are considered less favorable for new startups:

  • California: Despite its innovation economy, California’s high taxes, expensive labor, and strict regulations can strain small businesses.
  • New York: Offers access to capital and markets but is offset by high operating costs and complex compliance requirements.
  • Hawaii: Its remote location and high cost of living pose significant barriers for most business owners.
  • Connecticut: Known for steep business taxes and limited incentives for new enterprises.
  • New Jersey: Heavy regulatory burdens and high property costs make it challenging for small companies to scale.

Entrepreneurs shouldn’t automatically rule these states out—especially if their industry benefits from local ecosystems (e.g., tech in California or finance in New York)—but they should plan strategically to manage higher costs.

How To Choose the Right State for Your Business

Before forming a company, evaluate your business goals, target customers, and long-term strategy. Consider:

  1. Where you plan to operate – You may need to register as a foreign entity if you incorporate in one state but do business in another.
  2. Your tax strategy – Some states levy franchise, gross receipts, or excise taxes even if there’s no income tax.
  3. The type of business entity – LLCs, S corps, and C corps may face different filing fees and ongoing requirements by state.
  4. Access to professional services – Legal, accounting, and venture services may be easier to find in business hubs like Texas or Florida.
  5. Quality of life – States with affordable housing and strong amenities attract employees and sustain long-term growth.

Each entrepreneur’s “best state” may look different, but analyzing these criteria ensures that your choice aligns with both your financial and operational goals.

Frequently Asked Questions

  1. What is the cheapest state to start a company?
    Wyoming and South Dakota are often the cheapest, offering low filing fees, no state income tax, and minimal reporting requirements.
  2. Which state is best for online businesses?
    Delaware and Nevada are popular for online or remote-based businesses due to favorable tax laws and flexible corporate governance.
  3. Is it better to incorporate in Delaware even if I don’t live there?
    Yes, if you plan to attract investors or grow nationwide. However, you’ll need to register as a foreign entity in your home state.
  4. What state has the lowest business taxes overall?
    South Dakota, Wyoming, and Alaska rank highest for low tax burdens and simple compliance rules.
  5. Do incentives matter when choosing a state?
    Absolutely. Many states offer grants, tax credits, or workforce training programs to attract startups and help them scale efficiently.

If you need help with finding the best state to start a company, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.