In Which State Should I Form my LLC?
An LLC is relatively simple entity to file and has a lot of advantages. Learn which states are recommended for LLC formation and consider the benefits of forming an LLC in your home state.
One of the big benefits of forming an LLC is its flexibility that the LLC structure has as a business entity. You get to choose whether you want to be managed and taxed as a partnership (member-managed LLC) or as a corporation (manager-managed LLC – C Corp).
Where should I file?
While you can file in any state you wish, bear in mind the extra fees and paperwork required when you file outside the state that you do business. Even if you are a freelance writer with clients around the world, you are going to be taxed in the place where you are doing business. Even if you travel a lot, pick a state where you live or have the most connection – where you own a house, where you have your driver’s license, or where you pay your state taxes. If your business is more complicated and you have offices in two states, pick one for the LLC and use the other one as a foreign LLC.
Does my LLC have to be in the state I live in?
No, but that is most often the clear choice. If you do business in one state or have a physical address or store, filing in the state you reside in has advantages. Filing out of state requires a registered agent as well as filing as a “foreign LLC” for each state you do business in. It often saves a lot of money to file in your state of residence. However, if you do not have a physical facility or storefront or are planning on conducting most of your business out of state, you can explore filing an LLC in another state.
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Domestic LLC vs. Foreign LLC
A domestic LLC means you file in your state of residence and you do business mainly in that state. This is the most common and cost-effective scenario.
A foreign LLC is used when you have filed papers in one state, and you have a physical facility or storefront in another state. In order to do business in that second state, you need to file a foreign LLC. Foreign LLCs tend to cost more and require a registered agent. Conversely, if you file for an LLC in another state for some reason, and you do business in your home state, you will have to file a foreign LLC in your home state in order to do business there.
Taxes are paid where money is made. It doesn’t matter if you file your LLC in Delaware or Nevada, if you are doing business in Texas, taxes will need to be paid in Texas. You also still need to pay fees in the state in which you incorporated and the state in which you are doing business. Filing in more than one state makes things a little trickier.
Over 50% of U.S. publicly traded corporations are incorporated in Delaware and many LLCs are filed there as well. Delaware is a popular choice because it does not tax out-of-state income, it has low filing fees and it has a special Chancery Court that handles business matters. That being said, there is still the matter of an extra state’s filing fees and hiring a registered agent. There are more advantages for corporations to file in Delaware than LLCs, but it depends on your particular situation. Remember the domestic vs foreign LLC requirements as you will be paying fees in both states if you do not reside in Delaware.
Many believe that filing in Nevada is a good idea. Nevada has some advantages, including not taxing business income, no franchise taxes, and low fees. Nevada also has greater privacy laws that allow you to operate anonymously in public filings and restrict information that is shared with the IRS. If you don’t live in Nevada, you will still have to follow all of the rules required as a foreign LLC.
Wyoming has similar advantages to Nevada with no business income or franchise taxes, as well as a “lifetime proxy”, which allows some level of anonymity in voting and disclosure of your identity. As with all other alternative filing states, you may need to file a foreign LLC where you do business if it’s not in Wyoming.
Check out our Best LLC formation services list for our recommended LLC formation services. The top services will guide you through the LLC filing process and they support the LLC filing process in all 50 states.