As a startup company, many challenges could slow down or halt your company’s progress. Your finances, among other things, are a major point of reference here. If you start your LLC outside your home state, it’s important that you choose the right state. Thus, our experts recommend and review seven of the best states to form an LLC.
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Best States to Form an LLC
1. Wyoming
Wyoming is a best state to start an LLC with its substantial business-friendly environment. In this state you won’t have too many reporting obligations and you don’t have to pay taxes. These include franchise, personal, or corporate income tax rate.
Unlike many states like Delaware and Nevada, Wyoming provides a lifetime proxy. Particularly, you can get a domestic LLC registered agent to represent your shares. This allows complete anonymity through a registered agent or a law firm while you handle business matters. Apart from the fact that there are no corporate or personal income taxes, the state has a low annual fees.
Pros
- Minimal reporting obligations
- No need to pay any franchise taxes
- Lifetime proxy option
- Your anonymity is guaranteed
- Low sales tax rate
- You don't need to follow a corporate or personal income tax
Cons
- You'll still need to register as a foreign LLC in the state that isn't your home state
- If you operate in other multiple states, you won't enjoy the tax benefits of the state
2. Nevada
One of the most attractive things about forming an LLC in Nevada or outside your home state, is the lack of taxes. You can also consider this as one of the top states to from an LLC for your internet business. You don’t have to pay the corporate income taxes, personal income taxes, and franchise taxes in Nevada. However, the state may ask you to pay taxes and filing fees for your business license.
Apart from being a good place to conduct business activities, our experts find that Nevada is also great for privacy. Nevada allows you to be anonymous in your filings through registered agent or a law firm. You also don’t have to create an operating agreement or hold meetings in Nevada per year.
Pros
- No need to pay any corporate or personal income taxes
- Free from franchise taxes
- You can remain anonymous in your public filings
- You don't have to worry about the state sharing your information with the IRS
- No need to create an operating agreement
- You run your business with a fair amount of ease in the state
Cons
- You have to pay annual filing costs in Nevada
- You have to pay annual fees for your business license
3. Delaware
Delaware is generally a very business-friendly state for any small business owners, and forming an LLC is relatively quick. There are excellent registered agent in Delaware that can help you start up your business in the state, as well. Two things you’ll find particularly exciting in Delaware are the low fees and taxes for your large/small business. Delaware is the home state of corporations belonging to the Fortune 500. Unlike with a domestic LLC, Delaware doesn’t tax out-of-state income when you register as a foreign LLC outside their home state.
Apart from that, LLC in Delaware has low franchise taxes and filing costs that make it easy to start an LLC formation away from your home state. The Chancery Court in Delaware hears business cases and speeds up the resolution process.
Pros
- Delaware is very business-friendly
- Low filing fees
- Minimal franchise tax
- There are zero corporate income taxes for foreign LLC providers
- Delaware Chancery Court specifically for business disputes
- The filing process is very easy to get through to start a business in the state
Cons
- While the taxes are low, you still have to worry about them
- Delaware doesn't offer a lifetime proxy
4. Alaska
As a business owner, the chances are that you haven’t given much thought to forming an LLC outside or in Alaska. However, becoming an LLC business owner in the state where you live actually has quite a few enticing perks.
The state doesn’t require you to pay personal or state income tax and as a business owner, you don’t need to worry about sales tax rate as well. Regardless, keep in mind that certain cities in Alaska might collect their rates for local sales.
Pros
- There's no state income tax.
- There's no sales tax.
- Its property tax is quite low
- You don't need to pay any individual income tax.
- The unemployment rate in the state is fairly low.
- The filing fees in Alaska are not too high.
Cons
- Municipalities can charge up to 7% rate.
- You'll have to follow their corporate tax.
5. South Dakota
South Dakota is also a pretty good place to start your Limited Liability Company journey. South Dakota doesn’t have any state income tax or corporate income tax. You also don’t need to pay any corporate taxes that’ll strain your business income, unlike multiple states.
Our team considers this excellent if you want to start an LLC in your home state that is taxed as a corporation. The unemployment rate isn’t considerably lower than some others. Finally, South Dakota is among the states that is cheapest in terms of its property tax rates.
Pros
- Corporate tax rate of 0%
- 0% tax for individuals
- The unemployment rate within the country is low
- Less to pay on your property taxes
- It helps you to save money if your LLC is meant to be taxed as a corporation
- The setup process is fairly simple and stress-free
Cons
- Doesn't offer a lifetime proxy
- You'll still have to pay sales income tax
6. Florida
Florida is another excellent place to set up an Limited Liability Company. You’ll enjoy what’s known as pass-through taxation. This means that as the LLC member, you will report your share of the LLC’s loss or profit on your personal income tax return. Just like Nevada, Florida is also free from individual tax.
Also, there’s a lot of flexibility for forming an LLC in your home state with few limitations in members. While forming your LLC in the state, you can structure your management however you please. Finally, you can have subsidiaries without much of a problem.
Pros
- You don't need too many corporate resolutions
- You can have subsidiaries without any restrictions
- No individual income tax
- Property tax is among the lowest in the country.
- Pass-through taxation.
Cons
- There aren't so many case laws in place to protect your business
- You might have to spend more to keep your LLC afloat in Florida
7. New Hampshire
New Hampshire frees you of the burden of sales income tax. In addition, they don’t make you go through the stress of paying high-income tax. Apart from these, you have flexibility in your profit distribution. This is very impressive compared to a partnership where 50-50 is just about the standard. Meanwhile, the business enterprise tax[1] of this state is .72%.
Pros
- Flexible profit distribution model
- You don't have to pay sales income tax
- 0 percent personal income tax
- Unemployment within the country is low enough to do business
- You can get up to $600,000 from the New Hampshire Brownfield Loans
Cons
- The corporate tax rate is fairly high
- The state's property tax rate is comparatively high
What is an LLC?
Before going ahead to find out the state where it’s best to form LLC and search for the best LLC formation services to assist you, you should learn more about it for a start. In a Limited Liability Company (LLC), any income that the business generates flows to the investors and business owners who have limited liability. Meanwhile, your liability is entirely limited to the size of your investment within the company.
Types of LLC
- Single-Member LLC: It involves only one person.
- General Partnership: The business structure involves multiple people.
- Family Limited Partnerships: The business belongs to family members.
- Series LLC: These are business entities that give debts, rights, and obligations to smaller cells known as series (e.g. managers, assets, interests, etc.)
- L3C Company: This is a profit-oriented institution set up for philanthropic purposes.
- Restricted LLC: It requires a 10-year waiting duration before its members can receive business distributions.
- Anonymous LLC: Its ownership details are private.
- Member-Managed/Manager-Managed LLC: It involves each member taking responsibility for the business. A manager-managed LLC has passive members instead, like investors.
Points to Consider
Before you start deciding on states to start your Limited Liability Company (LLC), our experts suggest to consider the following:
1. Business Environment of the State
States have peculiar business environments for large/small business owners. If the business environment causes you more losses than profits, be careful. Large/Small business owners should always conduct proper research on a state’s environment before going for it. This applies to business owners with an online business.
2. Tax Rates
Before choosing a state to set up in, may it be your home state or a foreign state, find out how much you’ll pay in terms of the tax rate. This includes everything, from personal income tax to the sales and corporate tax.
3. Filing Procedure
The process of creating the company itself should be fairly simple with a short filing process. Look for one state that doesn’t require too much effort to get your business running. In this process, you can also appoint an LLC organizer to help you file documents seamlessly.
4. Competition
What competition exists within your home state? Are they a major threat to your potential business success? How will you handle them if you start an LLC operation within the state? Consider all of these and more before you start up your Limited Liability Company.
5. Employment Rates
If one state has low employment levels, the chances are that the population might not generally afford your product or service. In that case, you’ll be handicapped when it comes to making a profit. So, ensure that the employment rates are high enough to make a difference for you.
6. Additional Fees
If there are states where it’s best to start an LLC, there also worst states. Some states have municipal taxes which could take out more money from your pockets than you initially bargained to spend. Our experts strongly suggest to be on the lookout for such expenses before they start to drain your business income from your bank account. Besides tax rates/fees, you should also consider a premium registered agent services as part of your annual report fees if you’ll conduct business in the United States.
7. Other Responsibilities
Besides paying taxes, find out if there is anything you would also need to do. You can readily access this information by contacting the state’s authorities. This is important even if you’re forming an LLC in the state or outside your home state.
8. Privacy Protection
If you’re the type who doesn’t want all his business out there, you should keep an eye out for a state that offers anonymity like Nevada.
FAQ
What is the best state to form an LLC?
The best state to start your LLC is Wyoming. Unlike other states like New York and North Carolina, the state offer a lifetime proxy option. Apart from that, you don’t have to worry about hefty taxes and it is a business-friendly state.
Does it matter what state you form your LLC in?
It matters what state you want to form your LLC in because you do not want to pick any of the worst states. If you pick the right state to start an LLC, you can enjoy different benefits of doing even online business matters in the state. These include lower state taxes, a lower corporate/sales income tax, increased flexibility, or more privacy. If you start an LLC in states like Nevada, Wyoming and Alaska you don’t have to worry about individual income tax.
Can I move my LLC to another state?
You can move your LLC formation to another state. The easiest way to get started on would be to keep your old home state LLC. Then, register your LLC as a foreign LLC in other states.
Our Top Pick for a State to Form an LLC: Wyoming
Among all the states mentioned above, our experts choose Wyoming as the best state to form LLC. In Wyoming, you don’t need to pay any franchise tax while the other tax obligations, like the sales tax rate, are fairly low. Apart from that, your privacy is guaranteed by the lifetime proxy option. With that option, you can get someone else to represent your shares. Lastly, you get to enjoy minimal reporting obligations.
If you are planning to form a real estate company, you can also check our page about the best states to form an LLC for real estate here. Read next!
