How to Choose a State to Form an LLC

by ExpertEntrepreneur

Choosing the state of incorporation is an important decision, find out why.

After choosing the type of business structure best for your company, the most important decision you need to make is where to form an LLC. You've probably heard that it's best to form a Nevada or Delaware LLC as these states offer unique benefits, but the truth is this may not be best for your situation. Here's what you need to know about choosing your state of incorporation.

Foreign vs Domestic LLC

Your two most basic options are becoming a domestic LLC in your home state or becoming a foreign LLC in another state. A domestic LLC does business in its state of incorporation while a foreign LLC conducts business outside of its state of incorporation. Every time your LLC does business outside of its incorporation state, you will need to file a permit to become foreign qualified in other states. This means additional paperwork and compliance and additional costs.

If you conduct business or have a store in your home state but choose to register your LLC elsewhere, you will need to register and pay filing fees as a foreign LLC in your home state. You will still need to comply with local taxes, LLC fees, and laws with the added costs and paperwork of another state's taxes and laws.

The bottom line here? If you only plan to do business in your home state, it may be best to incorporate there to save yourself money and hassle.

Popular States for Forming an LLC

If you do business in many states outside of your home state, you may prefer a strategy that focuses on your out-of-state business. In this case, you may benefit by forming an LLC outside of your home state. There are three states especially popular for foreign LLCs:

  • Nevada. Nevada has business-friendly laws with no corporate income tax, personal income tax, or franchise taxes. The state also offers greater privacy as it does not share information with the IRS and allows LLC owners to remain unnamed on public filings. Nevada does have fairly high formation fees, however.
  • Delaware. More than 50% of publicly traded companies in the U.S. and 63% of Fortune 500 companies incorporated in Delaware for a reason. Delaware has very low filing fees and no corporate income taxes if you're a foreign LLC that does not do business in the state. One of the greatest benefits of the state is the Court of Chancery, a unique business court that has more than 200 years of legal precedence.
  • Wyoming. Wyoming has attempted to replicate Nevada's success in attracting businesses. It boasts minimal reporting obligations and no franchise, personal income, or corporate income taxes.

Which Option is Right for You?

To help you make this important decision, think about where you want your business to go in the next five or ten years. Do you plan to do business in your home state or expand? Do you want to go public? Does your business have a physical location or does it exist only online? Do you prefer saving money on taxes or avoiding additional paperwork? Considering your goals for your business can help you decide whether you should form your LLC in your home state or elsewhere. Companies like USA Corporate Services Inc. help business owners make the right decisions when it comes to incorporating. Check them out if you need help!

Updated: 07/15/2015, ExpertEntrepreneur
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