Best State For LLC Formation: Everything You Need to Know
If you're interested in finding the best state for LLC formation, read on to learn which are the best 11 states and why Delaware is the most popular.4 min read
If you're interested in finding the best state for LLC formation, read on to learn which are the best 11 states and why Delaware is the most popular.
Many People Consider Delaware the Best State for LLC Formation
Delaware continues to be the state of choice for LLC formation. It is known to have some of the most pro-business laws in the country. Delaware doesn't tax out-of-state income, which means savings for those who have businesses elsewhere. The initial fees and taxes are also some of the lowest in the country.
11 Best States in Which to Form an LLC
- A key to Delaware's pro-business state of mind is its Chancery Court, which handles only business cases. This court is able to conclude cases at a faster pace than ones in other states.
- The Chancery Court is the only court of its kind in the U.S., where judges are knowledgeable and specially trained in business matters.
- Delaware has an impressive resume in business law. It has been hearing corporation cases since the 1800s and was one of the first states to privatize the government-run corporations.
- Nevada has no tax on income or inheritance, and no franchise fees or capital gains tax.
- No annual operating agreements are required by state law.
- The state has an agreement with the IRS in which public filings of businesses remain private and are not disclosed to the public.
- Annual fees for license and list of principals in Nevada run around $325 per year.
- LLCs don't have to file income tax returns, and meetings can be held anywhere.
- There are no taxes on franchise or business income.
- A person can place his/her vote through another person who holds shares in the company in complete anonymity, also called "lifetime proxy."
- There is an annual fee of $52, which is much less than Nevada's new business license charge.
- Officers can maintain privacy and anonymity in LLCs.
4. South Dakota
- There is a low unemployment rate of around 4 percent, which is lower than all states besides Nebraska and North Dakota.
- This state has the lowest corporate income tax of $19 per capita compared to states that collect this tax.
- There are no income taxes in Alaska.
- There is a low unemployment rate compared to rest of the U.S.
- Corporate taxes of around 5.5 percent, with tax deductions that allow nearly half the businesses in Florida to avoid the tax altogether.
- There is no individual income tax.
- This state has one of the lowest property taxes in the U.S., ranging around 0.72 percent of the total home value in 2011.
- Montana has a fixed corporate tax of 6.75 percent.
8. New Hampshire
- Individual income tax is limited to dividends and interest.
- This state ranks first in the nation for sales tax policy.
- Corporate income tax rates continue to decline, with a planned rate of 4.9 percent by 2022.
- Taxes on income, property, and sales are also on the lower end.
- This state does tax on all the areas, but it ranks well because the taxes are on the lower end.
- The state has no sales tax, but it does have a relatively high-income tax rate.
If you've been reading about LLC formation, you've more than likely read about the importance of choosing which state to incorporate in. Since each state is different, you have to understand which one is the most advantageous for your business.
- Filing in your home state is best for those who do their business locally; for example, if you have a home, office, employees, or local clients in your resident state.
- You can save on foreign LLC fees if you file in your home state.
- If you file an LLC in your home state, you don't have to pay an agent to represent the LLC in another state.
- If your business has no physical presence in your state or if you will do business elsewhere, it's best to file in another state. An example is an internet business
- An LLC is separate from you as an individual. Therefore, an LLC can be incorporated in a different state from your residence, which might have more favorable business laws.
- You should understand what kind of business you are forming and take into consideration the many aspects that go into forming an LLC. These include the laws, fees, legal system, and workforce, to name a few.
If you need help with finding the best state for LLC formation, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.