Many useful business formation guide sites outline deciding on a business name for your future company as the initial step in LLC incorporation. Though it’s a crucial step to take and the one you should treat really seriously since an LLC name should be not only memorable and distinguishable but also unique, the prime decision you should make before even initiating the business formation process is choosing the state you are going to operate in. For many entrepreneurs, it goes without saying that the state of LLC formation is their domestic state where they reside. However, while it seems quite a natural and reasonable choice, US law allows forming an LLC in any state, including those outside your home state. With that, there are a few US states that offer certain business benefits that might be favorable for your current business situation or your future development plans. Hence, below, we consider how to choose the state for launching your LLC and how the cheapest LLC formation services can help you in this case as well as figure out the benefits brought by some states.
Home vs Foreign LLC Formation
It’s common knowledge that LLC law varies by state, so most entrepreneurs choose to start an LLC in their home state where they are aware of all legal details and procedures, have some useful contacts, and all state authorities are within easy reach. Home LLCs are about convenience, peace of mind, and doing business in the state you are physically present and reside in. Yet, while the LLC incorporation process is pretty much the same in any US state and the main difference is usually in filing and state fees, business operational requirements are not that similar. When you consider tax and licensing policies, certain states will look more business-friendly than others. And this is the main reason why businessmen happen to choose to set up an LLC outside their states of residence. In this case, though, to lawfully run your business in your home state, the establishment of a foreign corporation in the state where you live and physically operate your business is required.
To make it clear, for completing the business incorporation and creating an LLC, you need to file it in a chosen state, while to operate it in some other state, you need to register a foreign LLC there. Hence, a home LLC needs only to be filed in a domestic state while a foreign LLC should pass through both filing and registration. Besides, get ready to pay formation fees, added registration expenses, and taxes in both states. At the same time, though, tax benefits and other perks or incentives valid in certain states can outweigh those drawbacks. So, before making the final decision, consider those business benefits delivered by some US states.
Benefits of LLC Formation in the Certain States
What makes some US states different from the others when it comes to business formation and operation? First of all, the LLC incorporation process is rather a formal part of a bigger affair, and the bigger affair is day-to-day business activities and consistent business compliance maintenance. In this respect, taxation and legal flexibility are of utmost importance, and this is what makes certain states more attractive for business owners than others. And while numerous LLC formation services can help form your LLC in any of the US states, you are the only one to decide which state will be the best choice for your business scenario. By and large, here, you’ll have two options. It’s either your home state or the state of Nevada, Delaware, and Wyoming (unless one of these is already your state of residence).
Filing an LLC in Delaware
Delaware is considered one of the most business-welcoming US states and one of the most popular among entrepreneurs for LLC incorporation, thanks to the tax advantages it offers to businesses at all levels and the advanced court system. Even if you run your business outside the state, there are no out-of-state taxes to settle in Delaware. Besides, franchise taxes are much lower than those in many other states, which is a real find for companies operating under franchises. Yet another big plus about this state is a special court that handles only business-related lawsuits and consists of judges specialized in business matters. As a result, all cases are resolved in a quick, fair, and highly professional manner.
Filing an LLC in Nevada
A runner-up on our list, Nevada has been gaining more and more popularity primarily due to its tax-wise business environment and high level of privacy protection. Thus, by forming your LLC in Nevada, you’ll get the following perks:
- You’ll be exempt from corporate income taxes, franchise taxes, and state personal income taxes;
- The only payments to make on a yearly basis are an annual filing fee and a business licensing fee;
- In Nevada, the so-called corporate veil is as strong as in no other state. The state keeps private the names of the business owners and doesn’t share the company info with the IRS. If top privacy protection is what you need, Nevada is definitely a good option for you.
Filing an LLC in Wyoming
Though not an obvious choice for many businessmen, Wyoming quickly catches up with Delaware and Nevada in creating a business-friendly climate. With lower filing fees and a business-oriented tax system, this state is a good choice for startuppers and beginner entrepreneurs on a budget. Not only will you be able to form an LLC at about $100 but also you’ll pay only $50 for an annual report. Besides, you’ll be free from income and franchise taxes. And there is no need for a business license as well which will further minimize your annual maintenance expenses. One more bonus is reliable asset protection laws valid in the state.
The Role of LLC Services in Structuring Your Business
Structuring your business as a limited liability company and choosing a foreign LLC formation can bring both a lot of benefits and a lot of hassle. So, to be sure you are moving in the right direction, it’s advisable that you have some helping hand on your side. While a lawyer or an attorney is always a good choice, LLC incorporation services are also worthy and price-wise alternatives in this concern. Providing professional services in business formation, incorporation companies also have loads of valuable and helpful information on their LLC websites including articles and blog posts on how to choose the best state for your LLC formation. What’s more, normally operating nationwide, the best LLC services have representative offices in the most business-attractive states to come up with professional on-site help and enable you to use the state-specific benefits to the full.
When to form an LLC in Delaware, Nevada, or Wyoming you wonder? While it’s totally your decision to make, if you are a smaller business owner engaged in an activity that doesn’t expand beyond the borders of your home state, you’d better stick to a home LLC, in our opinion. Meanwhile, filing in the three above-mentioned states makes sense for fast-growing and high-risk businesses that need enhanced legal protection as well as for companies constantly moving from one state to another or formal entities that don’t actually operate a business like contractors or investment funds, for example.