Where Should I Form My LLC: Everything You Need to Know
In the United States, there are fifty states to choose from when interested in forming a limited liability company, also known as an LLC.4 min read
2. When to Register as a Foreign Corporation
3. Where to Get Help for Structuring a Business
4. Benefits of Structuring a Business in Delaware
5. Best Business Tax-Friendliness State
Asking yourself where should I form my LLC? In the United States, there are fifty states to choose from when interested in 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 you should consider due to each state having their own state 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 based 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 get to decide where you will operate your business. You also get to decide the governing legal structure that provides the greatest benefits for your business and your 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.
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.
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.
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 the state of Delaware so 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.
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.