Which State Should You File Your LLC In?

Which State Should You File Your LLC In?

by Brette Sember, Esq., August 2017

When you decide to start a limited liability company, or LLC, you might just assume you will be filing the paperwork for creating an LLC in the state in which you live.

You can actually choose to form an LLC in any state, regardless of where you are based. Each state has different laws, so your best state to form an LLC may or may not be your home state. Some states offer financial and other advantages for LLC formation that can prove to be beneficial.

You'll want to consider all the options and make the choice that works best for you and your business when starting an LLC.

Your Home State

When considering the choices for forming an LLC, your home state may be your first choice. There's a big convenience factor because you're already familiar with the laws and procedures in your state, you have contacts there, and all the government offices are within your state.

If your business is physically located in the state where you live and you conduct most of your business there, filing in your own state may be the best option because you may not have enough business in another state to make it worthwhile to set up there.

Also, if you register your LLC in your home state, you won't have to take the additional step of registering it as a foreign LLC with the state it's formed in, as you will have to do if you register it in another state.

Another important consideration is that if your LLC formation occurs in a state you are not present in, you'll have to pay a registered agent to represent your company and accept service of process in that state, which is an additional fee and step. If you file at home, you don't need to hire a registered agent.

You'll want to get an idea about the fees and taxes your business will be subject to if your LLC formation is in your home state. They may be higher than in other states. For this reason, if your business is not a brick and mortar company with a set location, it makes sense to evaluate which is the best state to start an LLC for you.

Delaware LLC

Delaware is the most popular choice for formation of an LLC. Delaware has a reputation for being a business-friendly state, leading many people to decide to form an LLC in Delaware. The state has a streamlined filing process that helps get your LLC up and running quickly.

Delaware does not tax out-of-state income, which means that even if the majority of your business is conducted elsewhere, it won't be taxed by the state. To entice LLCs, the filing fees and franchise taxes are low in comparison to other states.

Another important factor is that Delaware has a separate court, called the Chancery Court, that only hears business cases. Because of this, cases involving businesses are resolved more quickly than they would be in other states where they're thrown on the docket with all other types of cases. The judges are experienced in business matters as well, whereas judges in other states may have little or no background in this area of law before taking the bench.

Nevada LLC

Nevada is another state to consider for the formation of your LLC. There is no tax in Nevada on business income, capital gains, or inheritances, which makes it appealing to business owners. There is no franchise tax either, although there are fees for business licenses and annual filing fees.

If you form an LLC in Nevada, you aren't required to create an operating agreement or hold annual meetings for your company, which can make running your business simpler. Additionally, Nevada does not have an information-sharing agreement with the IRS. If you're seeking privacy or anonymity, Nevada may be the state for you, since it allows anonymity in public filings. The processing times for LLC filings in Nevada also are relatively fast.

Wyoming LLC

You might not immediately think of Wyoming as a good place to start an LLC, but it is quickly building a reputation on par with Delaware and Nevada.

When you form an LLC in Wyoming, there is no business income tax or franchise tax to pay. Wyoming also offers lifetime proxy, which means you can appoint someone else to represent your stock or shares and vote on your behalf. This allows the legal owner of the shares or stock to remain completely anonymous.

Because there are a number of factors to consider when forming your LLC, you'll want to weigh the pros and cons and then choose the state that provides the most benefit to your company.