I think it's fair to say that you should consult a tax professional before forming a legal entity; however, it's also important to have a general understanding

I think it's fair to say that you should consult a tax professional before forming a legal entity; however, it's also important to have a general understanding of each entity types' cost/benefit. There's plenty of info on the web. Additionally, for purposes of this discussion, legal entities are formed exclusively under state laws. While you can incorporate anywhere, most states require a registered agent be present domestically. You can hire firms like CTcorp to fill this role. The second consideration is your "physical" location. What constitutes nexus (especially for technology companies) is the subject of some controversy, but the specific legislation varies among states. Generally, nexus for income tax occurs in the locations where value is generated. This usually means the location of a firm's assets and employees. Sales tax nexus is even more ambiguous. Here's a better explanation than I could ever give: http://web.archive.org/web/20021001165628/http://www.aicpa.org/members/div/tax/praguide.htm http://web.archive.org/web/20021001165628/http://www.aicpa.o... Treatment at the federal level is uniform. Imagine that a significant portion of HN visitors are located in CA, so skmurphy's advice is worth paying attention to!