Entity formation involves choosing a jurisdiction, and the default answer of the home state is right for most businesses and wrong for some.
Home state. Simplest and cheapest for a business operating in one state, avoiding a second set of filings and franchise taxes. Where a business operates only in its home state, organising elsewhere means qualifying as a foreign entity at home and paying twice.
Jurisdictions chosen for their law. Well-developed corporate case law, specialised business courts, predictable outcomes, and statutes that permit extensive contractual customisation. Institutional investors frequently require it, and that requirement is the most common reason.
Internal affairs doctrine. The law of the state of organisation governs the relationships among the entity, its owners and its managers, regardless of where the business operates — which is what makes the choice meaningful.
Attempts to override it. Some states apply their own law to entities with substantial local contacts, and the effectiveness of those provisions is contested.
Cost. Franchise taxes vary by orders of magnitude and should be modelled at the expected size.
Conversion and redomestication are available in most states, so the choice is not permanent, though it may be taxable.