After you have decided to start your limited liability company, the next step is to determine which state is best to form an LLC.
Most potential LLC members would probably find this question confusing because there are many differences between individual states regarding their limited liability company laws.
Every state makes its laws about limited liability companies. Even though limited liability companies, limited liability partnerships, and limited partnerships are all separate entities in most states, there is no one-size-fits-all limited liability company state.
In other words, you have to do some research into what laws will apply in your case before you form a limited liability company.
But if you are looking for a state that is generally best to start an LLC, here are some recommendations.
List the Best States Where You Can Register a Limited Liability Company
To help you with limited liability company formation, here is a general list of the best states where a limited liability company can be registered.
It is essential to mention that limited liability companies are not limited to this list. LLC registration does not depend upon a limited liability company being formed in one of these states.
It would be unwise to presume that limited liability companies formed elsewhere or limited liability companies formed in one of these states will always meet the needs of your limited liability company formation.
It would help if you researched on your own before making any final decisions about where to form your LLC.
Forming an LLC in Delaware, Nevada, or Wyoming
If you choose to form an LLC in Delaware, Nevada, or Wyoming, you will enjoy certain advantages that may not exist anywhere else. These states are known as "popular states" for limited liability company formation because they have developed some of the most advanced laws for limited liability companies.
What are the benefits of forming an LLC in these states?
- Less paperwork
- Less administrative work
- Fewer costs
- Minimal reporting obligations
- No business income tax
- State income taxes don't matter because business expenses are tax-deductible, no state corporate income taxes.
This state's one significant benefit is that it does not have state corporate income taxes for an LLC. This means that if you do business in one of the other states which have a state corporate income tax and do business in Delaware or Nevada, you can write off all your expenses at the end of each year.
State income taxes are low, and the corporate tax rate is not higher than the average in these states. Perhaps this is one of the reasons why it's best to form an LLC in Delaware, Nevada, or Wyoming.
LLC in Your Home State
Since limited liability companies are based out of individual states, it would be most logical to form a sales tax and LLC in your home state if you already live there and plan on having sales and clients in that state.
However, your home state may not have the best laws. This is another reason why it's important to research all of your options before you begin organizing your limited liability company.
Many foreign LLCs are registered in Delaware without any further action being taken. Some foreign LLC/s maintain offices or business activities in multiple states, while some foreign LLC/s do not have any foreign location.
Some foreign companies are organized in group LLCs. This makes it possible to have multiple foreign members owning one foreign entity, which is then owned by foreign corporate entities that are themselves owned via a trust or other vehicle in another state or even country.
Should I Start an LLC in Another State Than My Home State?
As mentioned before, you should not prejudge where your limited liability company will be based until you have researched the laws of each state. However, some states tend to offer more benefits than others.
For example, Delaware offers LLC members the benefit of anonymity which helps owners protect their personal assets from business lawsuits or liability.
Delaware also has a lower tax rate for LLCs than other states and does not require foreign LLCs to file an annual report or pay franchise taxes.
Nevada is another popular state that offers listings to LLCs because they do not charge income tax or franchise taxes.
This makes it easier to form a business in any industry, which is why it is one of the most popular states to form an LLC in.
How Do I File for an LLC Formation in Different States?
Your LLC formation process will vary depending on the state you choose. To establish your limited liability company, you should follow the steps outlined by your business formation filing agency for that particular state.
If you're not sure where to start, it would be a good idea to at least make a list of all of your personal and business information before contacting any state formation agencies.
Most states require personal information such as your name, address, and social security number for personal income tax purposes.
It's also a good idea to get in touch with the secretary of state office in the state where you want to form your limited liability company so that they can inform you about all necessary fees and personal information requirements.
Some state formation agencies will require personal information for all members of your limited liability company, while others may not need personal information.
You also have to check how much the fees are in each state and any other requirements before you fill out their forms.
You should always review your filing documents before submitting them so that you have a good idea of what personal information the state will need.
Domestic LLC vs. Foreign LLC
Domestic LLCs follow the rules of their state of formation, while foreign business entities must have operations in the US to be qualified for many federal tax benefits.
However, foreign business entities are also restricted from being able to transact business within other states besides the one where they were formed.
Depending on the state that your business will be operating in, you might have to consider factors such as registration fees and annual report requirements when deciding which option is right for you. "Every state has different laws regulating LLCs."
Domestic LLCs only have to withhold taxes if they distribute their company's profits to members or owners, so it is best not to cash distributions until you consult with your tax advisor about how much money should be withheld.
Does It Ever Make Sense to Form an LLC Out of State?
To answer this question, you have to look at each state's corporate income tax laws. Some states do not require a foreign LLC to file a return because the company has no state income, while others allow a deduction for all expenses in another state.
If your limited liability corporation does business in multiple states, it depends on the regulations in each state.
Some states do not allow foreign LLCs to act as a limited partner, while others will not even recognize your limited liability company if it was formed in another state.
If you are still unsure whether or not to form an LLC out of state, make sure that you consult with an experienced business formation attorney who can help you decide where to file your limited liability company.
Can I Form an LLC in a State I Don’t Live In?
You can form an LLC in any state you want. You do not need to be physically present in the state when filing your paperwork or during formation.
Which State Is Cheapest to Incorporate In?
Delaware is the cheapest state to form an LLC in, followed by Nevada and Wyoming. Every state varies with regard to the filing fees and annual report requirements.
You need to check with your business formation agent or your Secretary of State's office for more information.
Which State Has the Lowest Taxes for Business?
Your state's corporate income tax laws will determine whether or not you have to pay taxes on your LLC.
You should always check with your business formation agent or the Secretary of State for more information about filing fees and annual report requirements.
Is LLC Best for Small Businesses?
An LLC is best for small businesses in many states. As a business owner, it's up to you to choose the state that will work best for your business.
You should consult with an experienced business formation agent who can help you decide which state is right for your limited liability company.
What Are the Worst States to Form an LLC?
The worst states to form an LLC are New Jersey, California, New York, Connecticut, Minnesota, Ohio, Maryland.
These states have complex registration procedures and high filing fees. Additionally, these states are notorious for their high taxes and restrictive business regulations.
If you're looking to start a business in one of these states, be sure to do your research beforehand and plan accordingly.