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Which State Should You File Your Llc In

Which State Should You File Your LLC In?

Forming a limited liability company (LLC) can provide important legal and tax benefits for a business. One key decision in starting an LLC is choosing which state to form it in. There are several factors to consider when deciding where to file your LLC registration.

Delaware

Delaware is one of the most popular states for forming an LLC. Here are some of the benefits of filing in Delaware:

• Well-Developed Business Laws: Delaware has very comprehensive and flexible business laws for LLCs. Their Chancery Court system specializes in dealing with complex business disputes.
• Privacy: Delaware does not require the disclosure of LLC members or managers. The only information that becomes public is the registered agent’s address.
• Tax Advantages: Delaware does not tax income earned outside of the state. They also do not have a state-level sales tax.
• Credibility: Being set up in Delaware can give extra credibility with banks and investors. Over 50% of publicly traded companies are incorporated there.

The downside of Delaware is the high franchise taxes and fees compared to other states. The initial filing fee is $90 and there are recurring annual franchise taxes based on total assets and gross income.

Nevada

Nevada is another very popular option for forming an LLC, with benefits such as:

• Privacy: Like Delaware, Nevada LLCs are not required to publicly disclose their owners and managers.
• Tax Advantages: Nevada does not have a state income tax for businesses. They also have no franchise, inventory or corporate taxes.
• Flexible Laws: Nevada’s corporate laws are highly flexible and allow customization of agreements between members.
• Low Cost: Forming a Nevada LLC only has a $100 initial filing fee and the annual fees are lower than Delaware.

The downside of Nevada is less guidance from courts on business dispute resolution compared to Delaware. However, their laws are still quite extensive.

Wyoming

Wyoming has recently become a popular option as well, with these benefits:

• Privacy: Ownership information is not required to be publicly disclosed.
• Tax Perks: Wyoming does not have corporate or personal income taxes. LLC fees are also tax deductible.
• Business Owner Protections: Wyoming offers strong liability protections for owners and managers. The laws make it more difficult to “pierce the corporate veil”.
• Rapid Processing: You can get your LLC approved in as little as 5 hours in Wyoming.

The downside of Wyoming is less legal precedence to draw on for business dispute resolution. But their corporate laws are still well-developed.

Your Home State

Forming in your home state where your LLC will be physically located and operating also has some advantages:

• Convenience: It avoids having to hire a registered agent for service of process in another state. You won’t have to travel should you ever get sued.
• Compliance: It reduces the risk of accidentally failing to qualify as a foreign corporation in your home state.
• Lower Taxes: You may pay less in annual taxes and fees compared to Delaware.

The downside is less flexibility in legal and tax structure compared to popular states like Delaware and Nevada.

How to Decide

With so many factors to weigh, here is a checklist to help decide the best state to form your LLC in:

• Where will your LLC be physically located and operating?
• Do you need privacy for your owners and managers?
• Will your business have assets or operations in multiple states?
• Will most of your business activity happen online?
• Are tax advantages from certain states beneficial?
• Is credibility with banks and investors important?
• Can you afford higher registered agent and renewal fees?

Resources

• How to Start an LLC in Delaware – Reddit Thread
• Should I Setup My LLC in Delaware? – Quora Q&A
• Compare LLC Filing Fees by State – FindLaw Overview

Forming an LLC is complicated, so consulting with business attorneys and accountants is highly recommended before deciding where to register. With a balanced evaluation of all the pros and cons, you can determine the ideal state to establish your limited liability company in.

References

https://www.reddit.com/r/smallbusiness/comments/ahu7aj/how_to_form_an_llc_in_delaware/
https://www.quora.com/Should-I-setup-my-LLC-in-Delaware-Why
https://www.findlaw.com/corporate/llc-faq/llc-filing-fees-by-state.html https://www.findlaw.com/corporate/llc-faq/llc-filing-fees-by-state.html