A state LLC is a limited liability company that combines some advantages of corporations and partnerships. Most notably, LLC owners enjoy limited personal liability and tax-saving benefits.

If you start an LLC in your home state — the state where you live — it will be a domestic LLC. After you form an LLC, if you wish to do business in other states, you must register them separately in those states. An LLC registered in a different state from its principal location is known as a foreign LLC.

It's easier and less expensive to form a domestic LLC. It's also usually the best in terms of a long-term strategy for your company.

Choosing a State to Start an LLC

As you get ready to start your own LLC, you've probably heard that it makes a difference where you file your business paperwork if you choose to do so outside of your home state. Some states offer more financial benefits than others, but you should carefully consider all your options before forming an LLC elsewhere.

The most obvious place to start an LLC for most people is their home state. Some people don't realize they have a choice for where they can start their business, but you don't have to form an LLC where you live.

Home state filing is a good option for many new business owners, especially those who plan to conduct most or all of their business there and have a home and store in the state. You may be able to save money on fees by filing a domestic LLC since you won't have to register as a foreign business.

Keep in mind that “doing business” means more than just having a physical office — it generally requires you to have an active business presence. If you operate a domestic LLC, you won't have to find and pay a registered agent in another state to represent your interests there.

You should consider all the taxes and fees you'll be responsible for when operating a business. Therefore, if your business doesn't have a physical location — for example, you run a consulting business with no storefront — or if your plans are to conduct most of your business out of state, you may want to start your LLC in a state outside of your own.

Popular States for LLCs

Delaware is the most popular state in which to start an LLC. The state is well-known as one of the most business-friendly locations in the U.S. It's a small state geographically, but in business activity, Delaware has a large presence.

Delaware often offers big tax savings for Delaware LLCs who may not even do any business in the state. This is because it doesn't collect taxes on out-of-state income. Franchise taxes are low in Delaware, as are initial filing fees.

Another state that's popular for starting an LLC is Nevada. It's gaining a pro-business reputation due to the advantages it offers for LLCs.

One reason business owners favor Nevada is the state places no taxes on the following:

  • Capital gains
  • Inheritance
  • Business income

Nevada also has no franchise tax. However, be prepared to pay yearly fees and business license fees.

The state doesn't require business owners to hold yearly meetings, and they don't have to have operating agreements. Nevada doesn't have an information-sharing agreement with the IRS. Because the state requires little disclosure, business owners who prefer to remain anonymous in public filings appreciate the privacy the state affords them.

Both Delaware and Nevada have fast processing times, so business owners who want to get their LLCs up and running quickly often prefer setting up businesses there.

Wyoming isn't as well-known as Nevada and Delaware for LLC formation, but it's gaining in popularly quickly, mainly due to its lack of business income and franchise taxes.

While it's often cheaper and more convenient to form an LLC in the state where you live, you may have specific reasons for forming an LLC in another state. Be aware of the rules and regulations of the jurisdiction you choose to ensure you meet all requirements.

If you need help with an LLC in any state, 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.