Where Should I Register My LLC? Choosing the Best State

Key Takeaways:

• Your home state is usually the best option for registering an LLC due to ease of compliance and tax obligations.
• States like Delaware, Nevada, and Wyoming offer LLC-friendly laws, but they may not always provide significant advantages.
• If you operate in multiple states, you may need to register as a foreign LLC in additional states.
• Consider factors like taxation, privacy, legal protection, and compliance costs when deciding where to form an LLC.
• Some states offer strong asset protection and business-friendly courts, which may be beneficial for certain business models.
• UpCounsel can connect you with experienced business attorneys to navigate LLC formation decisions.

Asking yourself “Where should I form my LLC?” In the United States, there are fifty states to choose from when forming a limited liability company, also known as an LLC.

While one might think that an individual's home state would be the best location, there are things to consider because each state has its own laws. There are states such as Delaware, Nevada, and Wyoming, that are considered more LLC-friendly. The laws of each state will have a considerable impact on how you will operate as an LLC, as well as how corporations, limited partnerships, and other entities must operate within that state. In addition, the laws will determine issues regarding privacy, liability, and taxes depending on the state of formation.

What Does it Mean to Forum Shop?

Fortunately, in the United States, you have the freedom to “forum shop”. This means that, as the owner, you decide where to operate your business. You also choose the legal structure that provides the greatest benefits for your business and personal situation.

Most business owners have found that whichever state you will be doing business in is ideally where business formation should take place. At times, your home state may be the best option, but for those residing in California or Colorado, tax policies may be reason enough to consider another state.

After considering your home state's tax climate and various factors, you may decide that your best option is to form your LLC in another state. Delaware, Nevada, or Wyoming are often considered great business tax-friendly states, therefore, they are great locations to incorporate in.

Factors to Consider When Choosing a State for Your LLC

When deciding where to register your LLC, consider the following factors:

1. Taxation: Some states, like Wyoming and Nevada, have no state income tax, while others, like California, have high franchise taxes and additional fees.
2. Regulatory Requirements: Some states require annual reports and fees, while others have fewer ongoing compliance obligations.
3. Legal Environment: Delaware has a dedicated Chancery Court for business disputes, which can be advantageous for companies that anticipate legal proceedings.
4. Privacy Protections: States like Wyoming allow anonymous LLC ownership, offering added privacy.
5. Foreign Qualification Costs: If you form an LLC in one state but operate in another, you may need to register as a foreign LLC and pay extra fees.
6. Asset Protection: Some states provide stronger protections against lawsuits and creditors, which can be important for certain businesses.

If your business will operate in multiple states, choosing the most cost-effective and convenient jurisdiction is crucial.

When to Register as a Foreign Corporation

In the event that you are doing business in another state outside of your LLC formation state, you will need to register as a foreign corporation within 90 days of your LLC formation. For instance, if have formed your LLC in Delaware but you're doing business in Florida, you will need to register as a foreign corporation.

When considering to form an LLC outside of your home state, you should consider the travel that may be required and also consider who you will help you in regards to the legal aspects of the LLC formation, such as an attorney.

Home State vs. Business-Friendly States

Most small business owners find that forming an LLC in their home state is the most straightforward option. However, states like Delaware, Nevada, and Wyoming are often favored for their business-friendly laws. Here’s how they compare:

• Delaware: Preferred by large businesses due to its efficient business court system and flexible LLC laws.
• Nevada: Known for zero state corporate income tax and strong asset protection, making it attractive for high-liability industries.
• Wyoming: Offers no corporate or personal income tax, strong privacy protections, and low fees.

However, if you register in one of these states but operate in another, you’ll likely need to file as a foreign LLC in your home state, which could negate any cost savings.

Where to Get Help for Structuring a Business

There are numerous websites offering fee-based services along with do-it-yourself options for forming an LLC online. These services have exploded in the past few years due to the LLC business structure being the more popular choice.

Comparing LLC Registration Costs Across States

LLC formation costs and ongoing fees vary by state. Here are common costs to consider:

1. Filing Fees: Ranging from $50 to $500, depending on the state.
2. Annual Fees & Franchise Taxes: Some states, like California ($800 annual tax), have higher costs, while others, like Wyoming ($60 annual report fee), are more affordable.
3. Registered Agent Fees: If forming an LLC outside your home state, you must hire a registered agent in that state, adding an additional yearly expense.
4. Foreign LLC Registration Fees: If operating in multiple states, you may need to register and pay annual fees in each one.

Choosing the cheapest state to form an LLC may not always be the best option if you must pay additional fees for foreign qualification.

Virtual Businesses and Choosing a State for LLC Formation

For business owners who operate remotely or have online-based companies, deciding where to register an LLC can be challenging. Here are some factors to consider:

• State Tax Laws – While some states offer tax advantages, businesses with remote operations may still owe taxes in states where they generate revenue.
• Economic Nexus Rules – Even without a physical presence, an LLC may be subject to tax laws in states where they make significant sales.
• Registered Agent Requirement – If you register your LLC in a different state, you must appoint a registered agent within that state, which adds extra costs.
• Legal and Compliance Burdens – A state with minimal filing requirements and reporting obligations may be more suitable for remote businesses.

Benefits of Structuring a Business in Delaware

Tax-friendly laws and a special court allocated to hearing business matters are reasons why Delaware holds such a strong reputation for being so favorable for LLC formation. The special court allows judges to focus exclusively on matters related to business, which expedites resolving pressing issues. A few other benefits that make Delaware attractive to LLCs include:

• No tax on corporate shares
• No business license requirement
• No personal income tax for nonresidents

Forming an LLC in Delaware provides business owners generous flexibility to control and structure ownership rights among its members and managers. LLC formation allows owners to also decide how the entity will be taxed. They will have the options of partnership, S corporation, C corporation, or sole proprietorship in terms of taxation.

In regards to privacy, the state of Delaware does not require a business to file the names of its members and officers with the Division of Corporations. However, in Nevada, the state's Secretary of State Office does collect the names of members and officers, but it is the only state in the U.S. that does not have a sharing agreement with the IRS. Regardless of such an agreement, the IRS can identify a business's members and officers if necessary.

As with LLCs operating in Delaware, Nevada LLC laws are very flexible in allowing owners to structure ownership and control. In addition, Nevada does not collect any individual or corporate incomes taxes due to a large portion of the state's revenue coming from taxes on high sales tax and gambling. This makes it a very tax-friendly state for businesses.

Best Business Tax-Friendliness State

In the United States, one of the most favorable bodies of law governing LLCs, and the first state to officially recognize the LLC structure, is Wyoming. The state does not have any income or corporate tax whatsoever, making it the highest-rated state in the nation for business tax-friendliness.

State-by-State LLC Benefits Overview

Each state has unique advantages for LLCs. Here’s a quick breakdown of key benefits:

Business owners should weigh tax savings against compliance costs before deciding where to form an LLC.

Frequently Asked Questions:

1. What is the cheapest state to form an LLC?
   Wyoming and Nevada have low filing fees and no state income tax, making them cost-effective choices. However, if you operate in another state, additional fees may apply.
2. Should I register my LLC in Delaware if I don’t live there?
   Delaware is beneficial for large companies and investors but may not be ideal for small businesses. You may need to register as a foreign LLC in your home state, increasing costs.
3. Do I need a registered agent if I form an LLC in another state?
   Yes. If your LLC is registered in a different state from where you live or operate, you must hire a registered agent in that state.
4. Can I change the state where my LLC is registered later?
   Yes, but it involves redomestication or dissolving and reforming the LLC in the new state, which can be costly and time-consuming.
5. How do I decide where to register my LLC?
   Consider taxes, compliance costs, legal protections, and operational needs. For most businesses, forming an LLC in your home state is the simplest option.

If you need help with deciding where should I form my LLC, 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.