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Choosing the right location to form your LLC is a crucial decision. This in-depth guide will help you determine the right state for your new business. It covers important decision factors like ease of startup, LLC fees, taxation, regulatory compliance, and more.
The Best LLC Services for Any State
No matter what state you are looking to form an LLC in, our top recommendation is ZenBusiness, which starts at $0 plus state fees. Form your LLC in any state in less than 10 minutes.
All of our recommendations for the best LLC services can help you form your business in all 50 states:
- ZenBusiness – Best for Most
- Incfile – Best Range of LLC services
- LegalZoom – Best for Speaking with Attorneys
- Inc Authority – Best for Skipping Service Fees
- BizFilings – Best for Choosing the Right Entity Type
Why Forming an LLC in the Right State Is So Important
LLC requirements vary from state to state, and some states are definitely more business-friendly than others.
While the overall formation process and liability protection for LLCs are similar nationwide, there are some smaller details that can have a big impact on how easy it is to start, manage, and maintain your LLC.
The cost to start and run an LLC will vary by location as well.
For example, it costs $50 to file LLC formation paperwork in New Mexico but $500 to form an LLC in Massachusetts. Massachusetts also has a $500 annual fee due every year, while Pennsylvania LLCs just need to pay $70 every ten years.
LLCs and LLC members in some locations aren’t subject to state income taxes. Other states have higher income taxes and require LLCs to pay a minimum franchise fee on top of those taxes.
Costs aside, things like reports and compliance requirements can be a pain and become a burden in some states compared to others.
In a perfect world, everything will run smoothly when you form an LLC in the right state. The filing process goes quickly, your formation documents get approved, and it’s easy to follow all requirements to keep you in good standing with the state. Ideally, the formation fees, annual fees, taxes, and other costs will be low as well.
But you can’t just blindly form an LLC in any state without understanding the rules and consequences. This can be a costly mistake for your business.
Every year, businesses are penalized for operating illegally, and this is obviously a scenario you want to avoid. Just because a state might be appealing to start an LLC in, it doesn’t automatically mean it’s the right state for your specific business.
The Best States to Form an LLC
No matter where you form an LLC, it’s best to have some help along the way. Getting organized, filling formation documents, preparing fees, and filing the appropriate paperwork with the right government agency can be a tall task for new entrepreneurs. Even if you’ve done this yourself in the past, the process might be a bit different if you’re starting a business in a new state.
Using an LLC formation service like ZenBusiness is your best option.
ZenBusiness offers LLC formation services in all 50 states. The great part about this service is that you won’t have to worry about filling out applications or filing paperwork on your own. ZenBusiness will handle all of this on your behalf.
They also provide an extensive list of other services that you’ll need to start and run your LLC. You can get registered agent services, DBA names, annual report services, and more.
All of this will make your life so much easier. So once you determine the best state to form your LLC, you can make it official with ZenBusiness.
Below we’ll take a closer look at the best states to form an LLC and why. These five options below should make it much easier for you to narrow down your options.
#1 — Your Home State
Some states might seem more appealing to form an LLC compared to others. But with that said, forming an LLC in your home state will likely be the best choice for most of you.
Let’s say you want to form an LLC in a state like Florida because there’s no state income tax. Sounds appealing, right? But you’d still have to register a foreign LLC in your home state. So if you live in California but want to start an LLC in Florida, you’d essentially have to register two LLCs.
This means you’ll have to pay two separate filing fees, file two annual reports, pay two separate annual fees, and more. You’ll even have to appoint a registered agent in two states. These extra costs, filing requirements, and headaches are rarely favorable. In the end, you’ll likely end up spending more money if you form an LLC anywhere other than your home state.
#2 — Wyoming
Fewer tax requirements make Wyoming an appealing state to form an LLC. No personal income taxes, corporate income taxes, or franchise fees are collected here. This state also has one of the lowest sales tax rates nationwide.
Wyoming also has something called a “lifetime proxy.” This is ideal for business owners who want to remain anonymous when they’re forming an LLC. You’re allowed to appoint someone else to represent your stock in the company.
There’s only a $100 filing fee to form a Wyoming LLC and an annual fee of $60 to the secretary of state’s office. If you use ZenBusiness’ annual report service, they’ll prepare and file the report on your behalf.
#3 — Delaware
Delaware has developed a reputation for being the “holy grail” of states to form a business. That’s because it’s a business-friendly state that offers low filing fees, low franchise taxes, and a simple formation process. Delaware is also one of the only states that lets you omit personal information from your formation paperwork, which is ideal for anonymity.
If you form an LLC and elect to be taxed as a corporation, Delaware does not collect corporate income taxes.
It’s also worth noting that shareholders, directors, or officers of the business are not required to be Delaware state residents. In fact, you can appoint a single person to fulfill all of these responsibilities.
Delaware also has the Chancery Court, which is a constitutional court that strictly handles business cases. So any legal matter involving your company is handled quickly and not dragged through the general court system.
#4 — Alaska
Alaska is another place without sales tax or state income taxes. The LLC filing fees are relatively low compared to other states as well.
The state of Alaska also offers tax credits and a wide range of loan programs to new businesses. There are credits for things like oil and gas services, mineral exploration, film production, new area development, and more.
These tax credits and loan opportunities can really keep your startup costs low as you’re forming a new LLC. But to qualify, you’ll likely need to have a physical operating presence within the state.
#5 — Nevada
Like many of the other states on our list, Nevada doesn’t have personal income taxes, franchise taxes, or corporate income taxes. Without these tax requirements, Nevada doesn’t even have a state income tax department.
If you prioritize privacy, this state will be really appealing for your LLC. That’s because Nevada allows public filings to remain anonymous during the registration process.
Nevada doesn’t have an information-sharing agreement with the IRS either.
LLCs in Nevada aren’t required to have an operating agreement. But with that said, it’s typically in your best interest to create one.
Tips and Strategies For Choosing the Best State to Form an LLC
While the states mentioned above are appealing for several reasons, you can’t just choose one from the list without doing your due diligence. The tips below will make it easier for you to choose the right state of formation and maintain your LLC there for the long run.
Strategy #1 — Look Beyond Short-Term and One-Off Fees
It’s easy to get discouraged when you’re comparing the LLC requirements from one state to another. Your home state might have significantly higher filing fees and annual fees compared to neighboring states.
But look on the bright side, the filing fee is a one-time occurrence. Just chalk it up as a cost of doing business and don’t think twice about it.
Searching for a list of LLC fees by state and using that as your sole decision is a mistake. If you happen to live in a state with low filing fees, then great. But it’s not the end of the world if you need to pay a bit more.
Strategy #2 — Don’t Move Just to Start a Business (In Most Cases)
Some states are really appealing to start an LLC, and others are on the total opposite end of the spectrum. If you live in a state with high income taxes, high state franchise fees, and other expensive costs to do business, you might consider moving elsewhere to start your business.
But this is a pretty drastic decision that you should think twice about.
There’s no guarantee that your LLC is going to be successful, regardless of you where you start it. So uprooting your life and potentially your family to a new state can be a big risk. You’ll have to think about your quality of life as well, and how that could change in a new location.
Depending on the type of business you’re starting, there may not even be a market for your products or services in a new area. So just because a location is considered to be the best place to start an LLC, it doesn’t mean it’s right for your business.
There are some scenarios where it might be worth it to move. Maybe the state you grew up in is considered a tax-friendly state for businesses. You know the market well, you have family there, and it’s a good overall decision for both work and personal reasons to move back.
But generally speaking, the cost associated with a move won’t justify the cost savings of forming an LLC in another state.
Strategy #3 — Make Sure You Understand Your Compliance Requirements
Forming an LLC is just the first step. But you also need to remain in good standing with your state for as long as your LLC is operating.
This is really important to keep in mind as your business grows as well.
For example, earlier we explained that Alaska doesn’t have any sales tax or state income tax requirements for LLCs. However, certain cities and counties within Alaska have their own tax rules. So depending on your location, you might need to register with a local agency and pay quarterly or annual taxes to them.
Be careful if you’re expanding operations beyond state lines as well. You can refer back to the example story we discussed at the beginning of this guide about out-of-state LLCs in Connecticut being fined.
Don’t assume that these companies were negligent or intentionally tried to get away with avoiding fees imposed by the state. It’s very likely that they just expanded into the state without realizing what the requirements were. Had they simply registered with the state and paid the appropriate fees, they could have avoided tens of thousands of dollars in penalties.
Now that you’re familiar with the best states to start an LLC, it’s time for you to begin the formation process and legally form your business.
As mentioned earlier, this process is much easier if you’re using a formation service. ZenBusiness is an excellent option, but you can check out our list of the best LLC services for alternative solutions.
From there, you’ll need to appoint a registered agent. Similar to LLC guidelines, registered agent requirements vary from state to state. We have a guide on the registered agent requirements in all 50 states that you can use as a reference.