California, Texas or Delaware? Where should you incorporate?
Choosing the right U.S. state for incorporation is one of the earliest - and most strategic - decisions international companies must make. Unlike most European countries, the United States is not one unified legal environment. Each state has its own corporate laws, tax rules, courts, privacy requirements, and administrative processes.
While you can technically incorporate in any of the 50 states, Delaware, Texas, and California consistently emerge as the top considerations for foreign-owned companies, each for different reasons:
- Delaware for corporate governance predictability and investor expectations
- Texas for pro-business regulations, rapid growth, and favorable taxes
- California for proximity to massive markets and specialized industries
This article breaks down the pros, cons, and key considerations for each - with a focus on what matters most to European small and mid-sized companies expanding into the U.S.
1st Foot USA is from Texas and we LOVE it here - but we'll still try to be neutral in this article :-)
Why your choice of state matters more than you think
Your state of incorporation influences:
Key Impact Areas
- Corporate governance and shareholder rights
- Tax exposure (state-level income, franchise, and sales tax)
- Administrative burden and annual costs
- Investor and partner expectations
- Where and how you can hire talent
- Legal protections in case of disputes
Your state of incorporation is not the same as the state in which you operate.
You can incorporate in Delaware but hire employees and maintain offices in Texas or California. However, operating in another state requires registering as a "foreign entity" there and may subject you to taxes in that state.
International companies should approach incorporation not as a formality, but as a strategic anchor for their U.S. presence.
Delaware: The global default for corporate law
Delaware is arguably the world's most influential corporate jurisdiction. More than half of publicly traded U.S. companies and over 60% of Fortune 500 firms are incorporated there - including Amazon, Tesla, Meta, and countless startups.
Why Delaware is so dominant
Key Advantages
- Best-in-class corporate legal system: Delaware's Chancery Court specializes solely in corporate cases, handled by expert judges rather than juries. This provides predictable rulings, faster case resolution, and extensive legal precedent. For foreign executives unfamiliar with U.S. litigation, predictability is invaluable.
- Preferred by investors: Venture capital firms expect Delaware C-Corps. Private equity firms prefer them. M&A lawyers are trained on them. If your U.S. strategy involves raising capital at any stage, Delaware is the safest and most frictionless choice.
- Flexible and founder-friendly corporate laws: Delaware offers broad flexibility in governance, including protective provisions for shareholders, straightforward stock issuance, flexible board structures, and business-friendly corporate statutes. This is ideal for companies planning rapid growth or future restructuring.
- Efficient and simple administration: It's fast and easy to incorporate. Annual filings are lightweight. Registered agents are everywhere. Corporate maintenance feels streamlined compared to other states.
Disadvantages of Delaware
What to watch out for
- ⚠Franchise tax can be costly: Delaware charges an annual franchise tax that can become expensive for companies with large authorized share counts - although manageable with the "assumed par value" method.
- ⚠You still need to register where you operate: If your team, warehouse, or office is in California or Texas, you must register and pay taxes there anyway. Delaware is not a shortcut to avoiding other states' obligations.
- ⚠Not always the cheapest option: If your company plans to operate solely in one state (e.g., Texas), incorporating in Delaware adds an extra layer of filings and registered agent fees.
Texas: Fast-growing, business-friendly, and tax-efficient
Texas is rapidly becoming one of America's most popular destinations for both residents and businesses. Cities like Austin, Dallas, and Houston attract companies across software, energy, manufacturing, logistics, and professional services.
Why Texas appeals to international companies
Key Advantages
- Pro-business tax environment: No state-level corporate income tax. Franchise tax exists but is relatively low, and the overall cost of compliance is lower compared to California. For European companies accustomed to strict regulatory environments, Texas feels refreshingly simple.
- One of the fastest-growing populations in the U.S.: Texas is experiencing significant population growth, much of it from people moving from high-cost states such as California. This trend is expected to continue, boosting workforce availability, consumer demand, real estate development, and talent pools in key industries. For companies with U.S. hiring needs, Texas provides a strong long-term talent strategy.
- Improving innovation ecosystem: Austin, in particular, has become a major tech hub, with strong venture funding and a rising number of international founders.
- Ease of doing business: Texas consistently ranks high in business friendliness, infrastructure quality, and regulatory simplicity. It's a strong choice for companies setting up operations like sales offices, development teams, or logistics hubs.
Disadvantages of Texas
What to watch out for
- ⚠Not ideal for venture-backed tech firms (compared to Delaware): Investors prefer Delaware. Many Texas-based startups still incorporate in Delaware because of investor expectations.
- ⚠Less-developed corporate case law: Compared to Delaware, Texas provides less corporate legal precedent, less specialized courts, and more variability in outcomes. For complex ownership structures, Delaware remains superior.
- ⚠You may still need to register elsewhere: If you sell heavily in California - or hire there - you'll still face California's administrative and tax environment.
California: Opportunity-rich but highly regulated
California is the world's fifth-largest economy if ranked as a country. It hosts Silicon Valley, major biotech hubs, Hollywood, and some of the highest-value companies on earth.
For companies whose U.S. strategy depends on specific industries (tech, entertainment, deep tech, green energy), California offers unparalleled access to customers, partners, and talent.
Why California continues to attract international companies
Key Advantages
- Unmatched industry ecosystems: California dominates several categories including technology and software, biotech and life sciences, cleantech and climate innovation, and media, entertainment, and digital economy. If your company depends on these ecosystems, California proximity can be strategically valuable.
- Access to elite talent: Despite rising costs, California talent remains world-class - especially in engineering, design, R&D, and product leadership.
- Large consumer market: With nearly 40 million residents, California is a massive domestic market in itself.
Disadvantages of California
What to watch out for
- ⚠High taxes and operational costs: California is known for high state income tax, high corporate tax rates, expensive labor costs, and strict compliance requirements. For many European firms, this comes as a shock.
- ⚠Heavy regulatory burden: California has stringent rules on employment, privacy, consumer protection, and environmental standards. You will face more paperwork, more reporting, and higher risk of penalties.
- ⚠Population outflow: California has experienced notable population loss in recent years, much of it migrating to states like Texas. This can affect long-term workforce availability and cost competitiveness.
Delaware vs. Texas vs. California: Which should you choose?
Below is a strategic guide tailored to international SMEs.
🏛️ Choose Delaware if:
- ✓ You plan to raise U.S. venture capital
- ✓ You envision future M&A activity
- ✓ You want the most predictable legal environment
- ✓ You want a widely recognized corporate structure for multi-state operations
- ✓ You value minimal friction with U.S. investors and partners
Best for: tech firms, SaaS companies, high-growth startups, companies with complex ownership structures.
🤠 Choose Texas if:
- ✓ You want low taxes and lower operating costs
- ✓ You plan to hire U.S. staff or operate from a central location
- ✓ You value regulatory simplicity
- ✓ You're entering energy, logistics, manufacturing, B2B services, or general tech
- ✓ You want long-term growth in a fast-expanding state
Best for: operational hubs, sales offices, development centers, energy and industrial firms, SMEs minimizing tax and compliance burden.
🌉 Choose California if:
- ✓ Your business depends on Silicon Valley or entertainment ecosystems
- ✓ You need access to industry-specific talent
- ✓ Your customers, partners, or investors are primarily in California
- ✓ You operate in biotech, climate tech, entertainment, or advanced R&D
Best for: deep tech, media, entertainment, biotech, and companies requiring California proximity to succeed.
Practical Decision Framework for International Executives
Start with your U.S. strategy, not state stereotypes
Where are your customers? Where will you hire? What is your expansion plan for 3–5 years?
If investment is in your future, default to Delaware
It is the safest long-term option.
If operations are your priority, consider Texas
Better cost structure and rapid growth - ideal for sales, logistics, and hiring.
If industry proximity is critical, choose California
But prepare for higher compliance overhead.
Remember: incorporation ≠ physical presence
You can incorporate in Delaware but operate in Texas or California - but you must register in those states anyway.
Talk to tax counsel familiar with international structures
Your home country's tax treaty with the U.S. may influence your best choice.
Final word: The right state depends on your long-term U.S. ambitions
For many international companies, Delaware remains the safest and most flexible choice.
For cost-conscious operational expansion, Texas offers unmatched advantages.
For industry-driven growth, California may still be the most strategic option despite its complexity.
Your incorporation decision lays the foundation for your entire U.S. market strategy - take the time to align it with your growth, investors, customers, and operational plans.