When you take a historic look at the U.S., it’s self-evident that America has nurtured one of the world’s most dynamic environments for business formation. This has been driven by our strong legal infrastructure, a culture of entrepreneurship and relatively low barriers to entry.
While 2023 and 2024 brought some stabilization in the wake of the pandemic, the first quarter of 2025 revealed some volatility, according to our analysis of state and federal Corporations Division data. After a brief upward spike in January, new entity registrations declined by 13% in February with a total of 442,100 new registrations. Year-over-year, February’s formation figures were down 4% from the same month in 2024. This downturn reflected a number of key factors: tariff anxieties, persistent trade tensions, the initial effects of widespread federal budget cuts, and severe winter storms in major regions.
Preliminary figures from March and April suggest mixed yet stabilizing trends. Entrepreneurs may view geopolitical and fiscal uncertainty and decide to delay, or consider other directions. Yet many look to forge ahead, buoyed by the perennial optimism of owning their own business and building financial security. For aspiring business owners, that process has long begun with the state of Delaware.
Delaware is King – But Perhaps Not for Long
Delaware may be called “the First State” because it was the first to ratify the U.S. Constitution in 1787, but for decades it has also earned its nickname as “the Corporate Capital” due to its dominance in the business formation landscape. Roughly two-thirds of Fortune 500 companies are incorporated in Delaware. Its flexible corporate statutes and business-friendly case law have made it the preeminent jurisdiction for incorporation, and its sophisticated Court of Chancery offers predictability in corporate disputes, appealing to larger enterprises navigating complex governance structures.
However, Delaware’s appeal is beginning to wane among small business owners and startups. Key reasons include:
- High Franchise Taxes: Delaware’s annual franchise tax burden has grown significantly, often becoming prohibitively expensive for small businesses with limited revenue but sizable authorized shares.
- Increased Regulatory Scrutiny: As Delaware’s prominence has grown, so has federal and shareholder scrutiny. Companies incorporated there may face heightened regulatory and litigation risk.
- Perception of a Shifting Climate: Some entrepreneurs now perceive Delaware as more oriented toward large corporate interests and less welcoming to the needs of smaller, founder-led startups.
Other States Earn the Trust of Entrepreneurs
Against this backdrop, some states with pro-business legislation and targeted economic incentives are gaining traction as alternative incorporation destinations, signaling a potential shift in where entrepreneurs choose to plant their flags. With small businesses seeking more favorable jurisdictions, these four states stand out in light of four criteria: privacy, cost, tax advantage, and legal structure:
Wyoming
- Privacy – Wyoming supports anonymous LLC formation, allowing business owners to maintain confidentiality and limit public disclosure of ownership information.
- Cost – The state offers low filing and annual maintenance fees, making it one of the most affordable options for business formation and operation. Its recent digital infrastructure upgrades also reduce administrative overhead by streamlining business filings.
- Tax Advantage – Wyoming has no corporate or personal income tax, giving businesses a significant financial edge compared to many other states.
- Legal Structure – Strong asset protection laws extend to single-member LLCs. This ensures that even sole proprietors enjoy the same level of legal safeguards as multi-member entities.
Montana
- Privacy – While not as anonymous as some states, Montana’s simplified regulatory environment supports straightforward entity management with minimal disclosure requirements.
- Cost – Montana has no statewide sales tax and low corporate filing fees, helping businesses reduce overhead and appeal to price-sensitive customers.
- Tax Advantage – The state has no sales tax and relatively low corporate income tax rates, creating a favorable environment especially for businesses selling high-value or high-volume goods.
- Legal Structure – With streamlined filing processes and an efficient online portal, Montana facilitates fast and accessible business formation and maintenance.
- Vehicle Registration – These benefits are also seen when registering a motor vehicle with a Montana LLC. By doing so, the LLC technically owns the car, affording liability protection and keeping an individual’s name off records, while company vehicles can also qualify for tax deductions. A registered agent can provide inexpensive assistance in this area.
New Mexico
- Privacy – New Mexico allows for anonymous LLC formation, with no public disclosure of members or managers, delivering strong privacy protections for business owners.
- Cost – The state features low filing fees and no annual reports or ongoing fees, reducing long-term administrative costs and obligations for LLCs.
- Tax Advantage – New Mexico may not eliminate income tax, but its minimal compliance requirements and low overhead contribute to an overall cost-effective tax environment.
- Legal Structure – With a new, fully digital filing system and an updated LLC Act clarifying dissolution procedures, New Mexico offers a modern and transparent legal framework for forming and managing businesses.
Nevada
- Privacy – Nevada does not require public disclosure of corporate officers or directors in many cases, enhancing privacy for business owners and reducing personal exposure.
- Cost – While filing fees can be higher than some states, no franchise tax on income and no personal income tax create an overall cost-effective business environment.
- Tax Advantage – Nevada also collects no corporate income tax, ranking it among the most tax-friendly states for businesses.
- Legal Structure – With strong legal protections for directors and officers, a pro-business judiciary and expanded digital notarization laws in 2025, Nevada supports flexible, secure and liability-limited business operations.
- Mail Forwarding – Nevada also has a mature ecosystem of registered agents and commercial mail forwarding providers that offer privacy through virtual business addresses, handle mail scanning and forwarding, provide real-time digital access to correspondence, and can even receive legal service of process on behalf of a business.
Looking Ahead with Cautious Optimism
Despite challenges that continue to unfold, the outlook for business formation in 2025 remains cautiously optimistic. While macroeconomic pressures are likely to persist, states offering clear advantages in tax policy, regulatory simplicity and operational flexibility will continue to offer alternatives to Delaware and attract new ventures. With due diligence to identify the right fit, aspiring founders can take the leap and aim toward long-term success.