Small Business Formation by State

Filing fees vary widely. As of 2026, Montana ($35), Kentucky ($40), and Arkansas ($45) have the lowest one-time LLC formation fees. Arizona, Colorado, Hawaii, Iowa, Mississippi, Missouri, and New Mexico all charge $50. The two outliers on the high end are Massachusetts ($500) and Tennessee/Texas ($300+). Low filing fees are only one piece of the picture — annual reports, franchise taxes, and registered-agent requirements can add ongoing cost.

Delaware hosts more than 65% of Fortune 500 companies because of its specialized Court of Chancery (a centuries-old business-law court), well-developed case law, and statutory flexibility for boards and shareholders. Wyoming is the modern alternative for small businesses: no state corporate or personal income tax, strong privacy protections (members are not required on public filings), and a $100 LLC formation fee. Wyoming has ranked #1 on the Tax Foundation State Business Tax Climate Index every year since 2014.

A franchise tax is a fee a state charges for the privilege of doing business there — it is owed regardless of profit. Texas, Delaware, California, New York, North Carolina, and roughly a dozen others impose franchise tax in some form. California's $800 annual LLC tax is one of the most-cited examples: even a dormant California LLC owes $800 per year to the Franchise Tax Board. The mechanics differ — gross-receipts-based (TX, WA), capital-stock-based (DE, NY), or flat-fee (CA).

Nine states levy no broad-based individual income tax: Alaska, Florida, Nevada, New Hampshire (taxes only interest/dividends, phasing out by 2027), South Dakota, Tennessee, Texas, Washington, and Wyoming. For a sole proprietor or pass-through entity (S-corp, partnership, LLC), this means business profits flow through to the owner and are not taxed at the state level. C-corporations may still owe state corporate tax (e.g., Florida 5.5%, Tennessee 6.5%, New Hampshire 7.5%), or a substitute tax like Washington's B&O or Nevada's Commerce Tax.

It depends. A handful of states require a general statewide business license for any business operating in the state: Alabama, Alaska, Delaware, Hawaii, Maryland, Nevada, New Jersey, New Mexico, Ohio, Rhode Island, Tennessee, Washington, and West Virginia maintain various general-license regimes. Most other states require licenses only at the industry level (contractors, food service, cosmetology, etc.) or local level (city/county). Always check both the state and the city/county before opening.