Best State to Form an LLC

Is My Home State the Best State to Form an LLC?

Let’s say your business has one brick-and-mortar location from which it operates in the state where you reside. The simplicity of registering your company there may seem straightforward enough, but what if you happened to live in a state where the corporate income tax rate was higher than the rate one state over? Also, what if you found out that another state didn’t even impose a corporate income tax?

“Tell me more about this mystical land of unicorns,” you say? Read on.

According to 2024 state corporate income tax data, two states can make the claim that they do not levy corporate income taxes or a gross receipts tax: Wyoming and South Dakota. While that may be incentive enough to register in one of those states, you must keep in mind that you must register your company in every state in which you intend to do business, as well.

So, if you would like to take advantage of Wyoming’s nonexistent corporate income tax benefits but your company is based in Illinois where it transacts its business, you are fully within your rights to register in both states.

However, you will now be responsible for paying the incorporation fee for both states, as well as the annual reporting fees for each. Every business is different, of course, when it comes to what it can afford to pay on a yearly basis. For some, Wyoming’s corporate privacy laws may be worth the extra incorporation, alone.

When you form an LLC business structure in multiple states, you must designate one state as your home, or “domestic LLC,” jurisdiction, and then your business in any subsequent states would be considered a “foreign LLC.”

When exploring the option of a foreign LLC, consider whether it's more beneficial to have a child or subsidiary company instead. This provides a two-tiered corporate shield and the ability to manage assets and liabilities more effectively.

Another consideration here is that many states levy franchise taxes instead of, or in addition to, annual filing fees and state income taxes for the privilege of conducting business in them. Franchise taxes vary from state to state, as well as how they are calculated.

Can I Live in a Different State Than My LLC?

The answer is generally “yes”, but there are a few criteria that must be met when forming an LLC in a different state. The determining factors for where to establish a company are whether you have W2 employees or a physical office. If you have either of those in a state, then you need to create a company in that state. However, this does not stop you from forming an LLC holding company to protect important assets.

California is unique in having a requirement that if sales to CA residents exceed 25% of your overall revenue, then you must also register. This along with other laws make California a difficult place to do business. For example, an $800 minimum franchise tax is due to the California Franchise Tax Board (CFTB) regardless of whether you generate revenue or profit.

Those who do not have a substantial physical presence or nexus in a particular state are free to select from the menu of available states for the entity and jurisdiction that best fits their needs. We encourage all business owners to consider their options strongly to avoid mismatching their needs.

Non-U.S. Citizen LLC Formation

LLC formation is not limited to U.S. citizens. Non-U.S. citizens can form LLCs in any of the 50 states.

Keep in mind that regulations and requirements may vary from state to state. And non-residents must appoint a registered agent with a physical address in the state in which the LLC is formed.

If a non-citizen intends to actively work in the business, they will need a valid visa that allows business activities, such as an E-2 or L-1 visa. However, forming an LLC as a passive investor does not require a visa.

Choosing Where to Start Your LLC

The best state to form an LLC ultimately depends upon your personal situation, whether you're a Single Member or Multi Member LLC, where you intend to do business, your desire for privacy, and how important asset and personal liability protection is, etc. We recommend reviewing not only this page but also the pages in our website specific to various state LLCs to be better prepared. Attorney consultations are also available for those desiring additional clarity.

State-specific laws

Given that each state has its own set of laws and regulations governing LLCs, it’s important to consider the implications of registering in different states on your business. These laws and regulations can cover liability protections, reporting requirements, governance, and more.

Certain states, such as Wyoming, Delaware, and Nevada, are popular states for LLC formation because of their business-friendly laws and legal frameworks that protect LLC members.

Personal assets protection

Asset protection is important. We have seen too many business owners lose what they worked hard for due to frivolous lawsuits. This trend doesn’t seem to be going away as the US is a relatively litigious society. Often lawsuits can be used simply to intimidate and blackmail owners, regardless of the merit.

Those providing goods and services can be sued by their employees, clients, vendors, or even the government. The level of risk depends on the industry and the level of desired protection on the risk tolerance of you and your partners.

Wyoming and Nevada have the best asset protection statutes. They respect Single Member LLCs by providing both a strong corporate veil and charging order protection. In short, Single Member and Multi Member companies are not treated differently, unlike many other states.

Privacy

We recommend the formation of private companies as often as possible as it can be risky to broadcast the assets you own to the broader world. Besides helping protect assets, it also keeps your home address off the internet. This is important because you may have family who lives there, or because you don’t want competitors knowing how large or small your company really is.

LLC taxation

A Limited Liability Company’s default tax classification with the Internal Revenue Service is to be a pass-through entity. For Single Member LLCs, this is a Sole Proprietorship. For a Multi Member, it’s a partnership. This means, that regardless of where the company is created, the taxes flow to the owners and are determined by where the owner lives.

For that reason, there is no “best state to form an LLC for taxes”. An LLC can elect to be taxed as an S Corp, a form of pass-through taxation, or a C Corporation, which involves paying corporate taxes. Additionally, some states impose sales taxes or a gross receipts tax on LLCs, and the owners may also be subject to personal income tax or personal state income tax depending on where they reside. That is a decision best made by your accountant.

Top States for LLCs

The following states offer a business-friendly environment and can be advantageous for LLC formation. They are sometimes referred to colloquially as the “best states for LLC formation” (in general). Details for each state are listed below.

Delaware

There's a reason why a majority of Fortunate 500 companies have incorporated in the lovely state of Delaware, and it's not for the abundance of peach blossoms (Delaware's state flower) found there. It is because of one main reason: its court system. It even sounds fancy – the Court of Chancery.

Juries are not seated in disputes involving Delaware corporations because the court is set up for cases to be heard by judges only - judges who specialize in corporate law. Cases are generally heard much more quickly in Delaware because corporate disputes have their own forum, away from non-business matters that may clog up the court systems of other jurisdictions. But, again, for corporations to enjoy the benefits of this specialized court system, they must play by Delaware incorporation rules and pay Delaware franchise taxes.

Delaware is a good fit for companies looking to raise capital from outside investors. In fact, most Venture Capitalists and Private Equity funds will require the company to be established in Delaware but will prefer a Corporation.

As mentioned, the state has a Chancery Court with significant precedence in corporate law. It is extremely shareholder and board-friendly. For these reasons, companies looking to eventually go public inevitably end up in Delaware.

It’s important to note, though, that these benefits do not come cheaply. An LLC must pay $300 to the Delaware Division of Corporations per year to remain open. This amount is due by June 1st, of the next year regardless of when formation occurred. For example, if the company was formed on December 31st, then the fee is still due within six months.

Delaware allows online filings but charges $50 extra for a 24-hour turnaround. Companies unwilling to pay end up waiting weeks. Wyoming and New Mexico respect small businesses and don’t charge expedited fees for online filing, which is how we believe business should be done.

Wyoming

Wyoming is the preeminent destination for small businesses. The state has low fees, the strongest asset protection, and allows anonymous LLCs. This unique intersection of benefits was intentionally created to attract national and international companies.

For example, not only are ownership and management details kept out of public databases, but even Single Member LLCs enjoy charging order protection. This means if you are sued personally the creditor cannot seize your business owner's assets. Similarly, if the company is sued, Wyoming has the strongest corporate veil which prevents your personal property from being at risk.

Wyoming also began offering a Chancery Court in 2021 for matters which require an expedited hearing. This can be particularly helpful if there is an existential business dispute which needs to be resolved promptly.

New Mexico

New Mexico is a small player for LLCs but has a place for cost-conscious companies and those desiring privacy. New Mexico allows anonymous LLCs, does not list managers or owners, does not require any visits to New Mexico. It charges only a $50 state fee to start and has no annual report or recurring annual fees. The company only needs to maintain a registered agent, like every other state, to remain in Good Standing.

Nevada

Another state that has emerged as a popular destination for incorporating entities is Nevada. Like Wyoming, Nevada provides appealing privacy laws to businesses. Benefits include minimal reporting requirements and the fact that shareholders and certain investors are not required to disclose publicly.

While Nevada does not have corporate income taxes, it does levy gross receipts taxes and sales tax on businesses, which some believe to be less economically sound for various reasons. Also, companies that fall under Nevada’s unemployment compensation laws and report gross wages to the Nevada Employment Security Division fall under Nevada’s quarterly modified business tax.

Nevada, for over a long period, provided one of the best environments for LLC formation. The government became greedy, however, and has raised fees almost every year for a decade. At the same time, Wyoming developed stronger laws with lower fees, and New Mexico kept its fees among the lowest.

We cannot in good faith recommend a NV company to anyone at this time. Those who formed one there can consider moving to another state to avoid the needless fees.

Florida

Florida has a business-friendly environment, minimal filing fees, and a favorable tax structure with no personal state income tax. The state filing fee for an LLC in Florida is $125, which covers the cost of filing your Articles of Organization.

Florida has charging order protection for multi-member LLC members, which protects personal assets from liability. A judgment creditor’s rights are limited by Florida law exclusively to a charging order against one’s multi-member LLC interest.

A word of caution, though, regarding single-member LLCs (LLCs with one owner) in Florida. Historically, Florida courts have treated single-member LLCs like sole proprietorships, with minimal asset protection. Therefore, Florida may not be your best option if you are a solopreneur forming a one-person business.

In addition, Florida also offers potential access to capital. Florida’s Department of Economic Opportunity helps small businesses with programs such as the State Small Business Credit Initiative (SSBCI), the Microfinance Guarantee Program, Prospera, the Florida Small Business Emergency Bridge Loan, Black Business Loan Program, and Rebuild Florida Business Loan Fund.

LLCs for Real Estate

When considering the best state to form an LLC for a real estate business, special consideration should be given to how the state treats real estate specifically.

Our preferred state to form a real estate holding company is Wyoming due to its strong asset protection laws and privacy benefits for a limited liability company. The strong asset protection laws and privacy are the determining factors that drive most real estate investors to the state. Nevada used to be popular, but is several hundred dollars per year more expensive. Wyoming LLCs are also anonymous. This means the public cannot see who owns the property, which assists with avoiding lawsuits and treasure hunters.

We recommend a holding company in Wyoming. The holding company then owns independently formed LLCs which own the properties directly. Most states allow a Wyoming LLC to own and rent real estate as it’s not considered to be doing business, whereas business law in other states such as California requires an in-state LLC.

LLCs for Online Companies

Online companies are another special class of business when considering the best state for your LLC formation.

Online companies are considered location-independent and may form an LLC where they desire. LLC owners should consider the specific benefits of each state when making their decision. For selecting the state that’s the best fit for you, look at our per-state explanations above.

Non-Resident Companies

If a non-resident is forming a company to raise capital, then Delaware is the best state. If you intend to raise capital from investors, then an LLC will not work, however. You will want to choose a Delaware Corporation. Corporations can issue stock to investors and employees, allow different share types, e.g., common and preferred, and have additional mechanisms for oversight, such as a Board of Directors.

If not, then either Wyoming or New Mexico would be suitable options. Wyoming has stronger asset protection laws, ensuring that your personal assets are protected from business liabilities. The initial filing fee is $100 with a $60 annual report. Additionally, there is a $2 convenience fee for filing online.

New Mexico is the better choice if asset protection is not desired. New Mexico LLCs are anonymous, just like Wyoming and Delaware, but the initial fee is only $50 and there is no annual report filing requirement, only that you maintain a registered agent.

Additional Requirements When Forming an LLC

When you decide upon the best state to start an LLC for your business, the work is not over. You should also read up on requirements related to articles of organization, EINs, registered agents, and operating agreements to better ensure that your business will be in good standing with the government.

Deciding Wisely: Selecting the Best State to Start an LLC

In conclusion, the choice of the best state to form an LLC hinges on various factors, including potential tax savings, type of LLC, and specific needs such as privacy and asset protection. States like Wyoming, Delaware, and New Mexico cater to diverse business requirements, each offering unique advantages. You may want to consider Florida, as well. Or, in certain cases, you may choose to form your LLC otherwise in your home state.

In making your decision, it is advisable to consider the specific needs of your business. We recommend further research and, if necessary, consultation with our business attorneys to ensure a well-informed choice that aligns with your goals and preferences.