Where to File LLC: Everything You Need to Know
Where to file LLC (a limited liability company) depends on a number of variable factors.These factors vary from state to state.4 min read
2. Are the Business-Friendly States for You?
3. Tax Evasion vs Tax Avoidance
4. LLCs in Delaware
5. LLCs in Nevada
6. LLC in Wyoming
- The investors
- The amount of one-time formation fee
- The amount of recurrent annual fees
- The amount of recurrent franchise taxes
- The amount of state income taxes
- The legal system of the state
The state to file an LLC in will be determined by the investors or owners of the LLC. They should carefully consider the expenses associated with forming it in that state and how the legal system of the state will affect their LLC's business model. These factors vary from state to state.
Which State Is Right for Your LLC?
You can choose between a domestic or foreign LLC. A domestic LLC operates in the state where it was formed while a foreign LLC operates in a state where it wasn't formed. An LLC which does business outside the state where it was formed has to file a “foreign qualification” in order to do business in a different state. For instance, if you form your LLC in Nevada where you don't reside, you'll have to register your Nevada LLC in your resident state as a foreign LLC to be able to do business there.
If you file a foreign LLC:
- You'll have two LLCs (one in your resident state, one in Nevada).
- You'll pay double state filing fees.
- You'll pay a registered agent to physically represent your LLC in Nevada.
- You'll pay double yearly report fees.
Are the Business-Friendly States for You?
If you've been doing a bit of digging on LLCs, chances are you've heard that states like Wyoming, Delaware, and Nevada are more promising for your LLC than your home state. It's true that these states are more business-friendly than other states, but you might not qualify to benefit from them because of certain legal requirements (which you might not meet) and inadequate paperwork.
If your business offers goods or services to residents of your home state, there's no point forming your LLC in a different business-friendly state and still compulsorily register it in your home state. Even Internet-based businesses can't escape the tax obligations of their home states by forming LLCs in different states. A Florida resident running an internet business from home should ideally form an LLC in Florida.
Tax Evasion vs Tax Avoidance
Tax evasion isn't the same as tax avoidance, there's a massive difference. Refusing to pay taxes or cheating the government by inaccurate tax filing is tax evasion. Avoiding taxes is employing legal means to reduce them.
LLCs in Delaware
Delaware is the all-time favorite for forming LLCs. Clearly, Delaware doesn't demand taxes from out-of-state revenues, which can amount to significant tax savings for LLCs in Delaware. Additionally, franchise taxes and initial filing fees are favorably low
Delaware's Chancery Court, which is one of a kind in the 50 states, is a major advantage for LLCs. That's because it treats only business-related issues. That, in turn, means that business-related disputes are resolved faster in Delaware than anywhere else where they might be delayed as they wait for other varied cases. Again, Chancery Court judges are lettered in business law while judges in general courts in other states may not be.
LLCs in Nevada
It's for good reasons that Nevada is dubbed a “tax haven.” Since Nevada doesn't tax capital gains, business incomes, or inheritances, it's a favorite of business owners. Furthermore, Nevada doesn't demand franchise taxes. It only requires nominal business licenses and yearly fees. LLCs in Nevada don't need to file any income tax returns.
Again, Nevada doesn't need yearly meetings or operating agreements to honor state laws, and business owners don't have to reside in Nevada or even in the U.S. Sadly, however, Nevada's companies rank the highest in fraud. Nevada has also increased their fees for filing, which are now higher than those of Delaware and Wyoming.
LLC in Wyoming
Like Nevada, Wyoming doesn't demand franchise taxes or business income taxes. Wyoming has a low yearly renewal fee of $52. Wyoming doesn't need a State Business License. The Wyoming state government is making efforts to make Wyoming the most business-friendly state of the union.
Filing an LLC can be a bit tricky and the paperwork can be confusing. But it's important that you get it right from the beginning with qualified legal help.
If you need help with where to file LLC or with the entire process from scratch to finish, 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.