Starting Up: Which State Is a Good Fit to Form Your LLC?

Some states offer LLCs more financial advantages than others, and that means you should carefully weigh your options before deciding which is the best state for your business needs. Here are some of the factors to consider.

Many people form LLCs in their home state because it's the most obvious choice, or they didn't know they had a choice. Filing in your home state can be a good option for many entrepreneurs, particularly those who operate a brick-and-mortar store, and conduct the vast majority or all of their business in their home state. Moreover, filing in your home state could save you from having to pay “foreign LLC” registration fees in certain circumstances.

On the other hand, it's important to consider the fees and state income taxes your business may be required to pay if you do decide to form your LLC in your home state.

Especially if your business has no physical facility or storefront—a consulting business, for example—or if you plan on conducting the majority of your business out of state, you may want to consider starting an LLC in a state other than your home state. Below are three noteworthy options.

Delaware LLC

The most popular choice for those forming an LLC continues to be Delaware. Why? Delaware has a solid reputation as one of the most business-friendly jurisdictions in the country. Notably, Delaware generally doesn't tax out-of-state income, which can result in meaningful tax savings under certain circumstances. In addition, its initial filing fees and annual franchise taxes are relatively low compared to other states.

Another plus in Delaware's column is its Chancery Court, which specializes in business disputes. As a result, the judges of the Chancery Court are often well-versed in business matters.

Nevada LLC

Many businesses have alternatively chosen to form their LLC in Nevada. Nevada offers favorable tax treatment for in-state business income, capital gains, and inheritance (although there is a gross receipts tax, and Nevada LLCs must pay business license and annual fees).

Moreover, Nevada doesn't require annual meetings or operating agreements in order to stay compliant with state law. Notably, Nevada also has no information-sharing agreement with the Internal Revenue Service (IRS). Indeed, the state doesn't require much disclosure at all, allowing Nevada LLC owners to remain largely anonymous in public filings, which means those who value privacy regarding their business may find Nevada to be a good fit.

Above all, Delaware and Nevada both offer relatively fast LLC registration, which can be a big advantage for those who want to get their businesses up and running as quickly as possible.

Wyoming LLC

Although not as well-known as Delaware and Nevada in the world of LLC formation, Wyoming is gaining ground fast. Similar to Nevada, Wyoming does not have franchise taxes, nor does it tax business income earned in the state. It also has a “lifetime proxy,” which allows even more anonymity than Nevada, in a sense. Through this proxy, an individual can privately express his or her vote through a selected person who holds the stock or shares.