When you decide to start a limited liability company (LLC), you can choose to form your company in any state, regardless of where you are based. But in most circumstances, your home state is going to be your most-effective option.
If you were to form your business in another state, you will still likely meet the criteria for doing business in your home state. So, even if you were to form your business in Delaware, Nevada, or Wyoming, you would have to file paperwork in your home state, eliminating any tax or cost savings.
Forming an LLC in Your Home State
When you form your LLC in your home state, there's a big convenience factor because you're already familiar with the laws and procedures, you have contacts there, and all the government offices are within your state. Also worth considering:
- 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.
- If you register your LLC in another state, but meet the definition of doing business in your home state (or any other state), you have to take the additional step of registering it as a foreign LLC.
- 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.
Forming an LLC in Delaware
Delaware is the most popular choice for forming an LLC outside of your home state. It has a reputation for being business-friendly, leading many people to decide to form an LLC in Delaware.
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.
Forming an LLC in Nevada
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 Internal Revenue Service. 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.
Forming an LLC in Wyoming
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.