When choosing a business structure, the one you pick influences everything from day-to-day operations to taxes, to how much of your personal assets are at risk. You have to choose a business structure that gives you the right balance of legal protections and benefits.
A limited liability company (LLC) is a business structure that limits the liability of the owners. An LLC lets you take advantage of the benefits of both the corporation and partnership business structures.
LLC’s protect you from personal liability in most instances, your personal assets – like your vehicle, your house, and savings accounts – so they won’t be at risk in case your LLC faces bankruptcy or lawsuits.
Each state has different regulations – so before you start – let’s look at the best state to form an LLC.
Should you Form your Limited Liability Company in Your Home State?
Some states are described as the “best states to form an LLC”. They include:
- Nevada -(no corporate income tax)
- Wyoming – (most affordable LLC’s)
However, there is a school of thought that says you should form your LLC in your home state. That is, you will have to own two LLCs if you go outside of your home state. For example, if you form an LLC in Nevada and you don’t live there, you’ll be required to register the out-of-state LLC as a foreign LLC in your home state. This means you will have to:
- pay 2 state filing fees
- 2 annual reporting fees
- pay a registered agent who resides in Nevada for the use of their address
It’s also interesting to note that many small business owners choose Delaware and Nevada to set up their business for the low filing fees and lack of state income tax, however, these benefits are usually more lucrative for larger companies, not small businesses. That being said, if you have a large company or are a small business owner that still wants to find the best state to form an LLC – continue reading below!
Best State to Form an LLC: Which Is Right For You?
Different states offer different incentives for the LLC filing process in those states. For some start-ups, it might be useful to shop around. Carefully weigh your options before signing any operating agreement and filing for an LLC
As mentioned above, many people file in their home state. This is because many don’t know they have a choice. It is possible that you won’t meet the criteria to file outside of your home state, such as you have a physical store or office in your state and you must file where this is located.
If your business has no physical facility or storefront, like a print on demand business for example, then you should consider starting an LLC in a state other than your own.
Let’s look at some of the most popular states in detail
Delaware is probably the most popular choice for forming an LLC. This is because Delaware has a solid reputation as one of the most business-friendly jurisdictions in the country. Delaware doesn’t tax out-of-state income which can mean high savings for Delaware LLCs who hardly do any business in the state itself.
Also, Delaware’s Chancery Court only handles business matters. This means cases that involve business disputes are handled fast. Your case doesn’t have to get in line and wait along with civil cases to be heard in the court – as in other states. This also means that the judges in Chancery Court are experienced in business matters. In other states, you may have judges that are not as familiar with business procedures and laws.
Nevada is a state with advantages for LLCs. Nevada doesn’t tax business income, capital gains, or inheritance. Also, Nevada doesn’t have franchise tax (it does have normal business license fees and annual business fees). Another thing is that Nevada doesn’t require annual meetings or operating agreements in order to stay compliant with state law.
It’s interesting that Nevada doesn’t have information-sharing with the Internal Revenue Service (IRS). It’s actually true that the state doesn’t require much disclosure at all – allowing a Nevada corporation to remain anonymous in public filings. Therefore, anyone who values privacy regarding their business may find the idea to form an LLC in Nevada to be the best state for them.
Nevada is also known for its fast processing times. This is an advantage for a business owner wanting to take that step and get the filing process going faster.
Wyoming is not as well-known as Delaware and Nevada in the United States as far as LLCs go, but Wyoming is gaining popularity. Wyoming does not have business state income taxes or franchise taxes. It also has what is called a “lifetime proxy” which offers anonymity similar to Nevadas. Actually, it may even offer more privacy.
Through the proxy, an individual can privately express his or her vote through a selected person who holds shares or stocks.
North Carolina LLCs are formed by filing with the North Carolina Secretary of State. North Carolina has consistently been ranked at the top of the list for doing business in general. It has the fourth-lowest business costs for any state and rates ninth for labor-supply.
Throughout 2019 and continuing the trend in 2021, companies such as Microsoft, car sales platform Carvana, and drug company Pfizer have all invested in North Carolina. Companies love the state’s low tax rates, low share of workers in unions (4%), and low cost of doing business (energy costs are 22% below the national average). Therefore, North Carolina deserves a mention on our list.
To Sum it Up: Forming Your LLC
LLCs help separate personal assets and liabilities from personal ones, reducing your personal risk if your business is unable to pay its bills. Get off on the right foot by deciding exactly which state is best for you to file your LLC.