Which state to incorporate your U.S. subsidiary in?

Expanding into the U.S. usually means establishing a local presence, highly recommended for credibility and success, and for most companies that involves setting up a U.S. subsidiary. Once you decide whether a C-corporation or an LLC makes the most sense, the next big question is where to incorporate, since incorporation in the U.S. happens at the state level.

Delaware has traditionally been the go-to choice, including for foreign-owned subsidiaries. That’s largely because of its well-developed corporate laws, strong protections for companies, and a court system focused specifically on business disputes. Delaware’s Court of Chancery uses experienced judges instead of juries, which tends to lead to more predictable outcomes, faster case resolution, relatively low taxes, and a straightforward, low-cost incorporation process.

That said, Texas is becoming a very compelling alternative. For companies whose U.S. operations will actually be based in Texas, incorporating in Delaware often doesn’t offer much real benefit anymore. Texas has no state income tax for individuals or corporations and has recently introduced specialized business courts for complex commercial cases. These disputes are handled by judges with deep business law expertise rather than general civil juries, which helps make outcomes more predictable and efficient.

Texas has also strengthened its corporate governance rules by adopting a more business-friendly version of the Business Judgment Rule, giving directors and officers strong protection when they make good-faith business decisions.

Incorporating in Delaware while registering as a foreign entity in Texas—the state where the company actually operates—can add unnecessary costs. These include extra filing fees, compliance requirements, and franchise taxes. In many cases, incorporating directly in Texas avoids these expenses and simplifies things.

There are still situations where Delaware makes sense, such as certain intellectual property disputes where Delaware courts are known for consistency, or when large venture capital investors strongly prefer Delaware entities out of habit. Even so, this is changing. Texas is increasingly seen as a major hub for finance and innovation, with growing access to capital and the recent launch of four stock exchanges in the state.

Overall, Texas has made major strides to attract business and is now one of the most appealing U.S. states for both domestic and international companies. Recent updates to Texas business laws make it easier—and often more cost-effective—for foreign companies to incorporate their U.S. subsidiaries directly in Texas instead of defaulting to Delaware out of tradition.

Vesa Jaamuru
Vice-President, Finnish American Chamber of Commerce North Texas
Founder & Consultant, Muru Advisory Partners