Which is the best state to form an LLC in?

By Bazal Razzaq

Chief Editor

Updated: July 05, 2023

Editorial Note: We earn a commission if you use the services recommended on this page. Commissions do not affect our opinions or recommendations.

Which is the best state to form an LLC in

Thinking of opening an LLC but unsure which is the best state to form an LLC in? That’s probably why you’re here. Worry not! We’re here to help you out with the process. 

Before jumping right in, let’s clarify: What is an LLC? Does it offer any benefits? Why choose it over any other business type? 

Simply put, LLC or Limited Liability Company is a US-specific business type allowed by state law. It can only be founded in America and is a private limited company. Also known as a hybrid entity, it features both organizations and partnerships. It could be considered a perfect and secure choice for business owners looking for more security and protection from debts and other liabilities. It offers the flexibility of a partnership with the asset security of a corporation.

Given its flexibility and security, it is a popular choice amongst entrepreneurs like you. Also, unlike any other business structure, you can for your LLC in any state regardless of location. 

A private limited company that offers security from debts, arrears, and liabilities. Amazed? So are we! But that’s just not it. Here’s a quick run-through of additional perks that come with applying for an LLC as your business structure:

  • Distinct legal identity
  • Pass-through taxation
  • Limited Liability
  • Permanent existence
  • Flexible management

To learn more about the benefits of an LLC, you can simply head here.

Now that we’ve established that an LLC is the best business entity for your company’s requirements and needs let’s move forward with the following:

What is the best state to start an LLC?

The first misconception to debunk is that you can only file an LLC at the same place you live. That’s completely false. One can form an LLC anywhere in the United States. 

Different states offer different privileges, advantages, and drawbacks. So you need to be as smart and well-informed as possible.

While the choice depends on your business models, personal preferences, and company needs, some states are favored more than others:

Four states to start an LLC

#1 Your Home State

Yes. You read that right. Your native state is indeed the best state to form an LLC! Why? Because forming an LLC in your own state is cost-effective and affordable, usually simpler and away from all the hustling and bustling that comes with starting an LLC in any other state. 

Another major reason is it may be cheaper to file an LLC locally instead of filing one in another state and then registering it as a Foreign LLC in your home state. Going through the same thing twice means double the cost and paperwork compared to filling in your state as a Domestic LLC. Moreover, filing in your home state will save you from paying “Foreign LLC” registration fees in certain conditions.

Now, what happens in the case of states like California and Massachusetts, where filing rates and tax charges are relatively higher? Where do the natives of these states open LLCs? The answer will remain the same. Why? 

Let us take you through this with the help of an example. Suppose you live in California – where you need to pay higher filing fees and submit annual reporting obligations – and wish to open in Georgia. The smart and obvious answer is to flee California and set up an LLC in Georgia, right? Wrong! Just because you get an LLC in Georgia doesn’t mean you’re rid of all the financial obligations back in California. You’ll still have to register your Foreign LLC in California, which basically means:

  1. You will have to register a Domestic LLC in Georgia and a Foreign LLC in California.
  2. As a result, you get two pay two separate filing fees,
  3. And two separate annual report fees. 
  4. You also need to recruit one registered agent for LLC in California and one for Georgia.

We may have used California and Georgia as examples, but the same applies to all US States. 

For any more information on Domestic LLCs vs. Foreign LLCs, click here.

#2 Delaware

If you’re planning to start an LLC anywhere in the United States, chances are you already know about Delaware being the most business-friendly state for LLCs and any type of business corporation. If we’re to believe the Delaware Division of Corporations Annual Report, 66.8% Percent of all Fortune 500 Companies are incorporated in Delaware.  

Delaware’s General Corporation Law and Court of Chancery make it even more appealing for people like you planning to open an LLC. The Court of Chancery is a separate designated court that handles all business matters. A panel of experienced judges in business affairs looks over all the cases and puts together fair outcomes. This precision is exactly why Delaware ranks near the best in several ranking surveys

While being legally fair, it also offers a faster filing process with lower franchise taxes. Filing fees are as low as $90 and are also a part of the four “anonymous LLC” states. Such massive advantages make it a top scorer amongst entrepreneurs looking for the best state to form an LLC. 

As a business owner, we’ll let you be the better judge. To help you decide better, here’s a list of pros and cons:

Pros of opening an LLC in Delaware:

  1. A Quick and straightforward formation process
  2. Franchise taxes and minimal filing costs
  3. Corporate income taxes are not levied (for foreign LLCs that elect for corporation taxing)
  4. Enhanced privacy for your company
  5. Flexible organizational framework
  6. The business-specific legal system (Chancery Court)

Cons of opening an LLC in Delaware:

  1. Out-of-state LLCs need to register twice
  2. There must be two registered agents (one for each state)
  3. Several legal representatives (most lawyers are licensed to practice in one state)
  4. No uniform franchise taxes

For any more information, you can contact our team at bestllcsolutions.com

#3 Nevada

Another state to add to your “best state to form an LLC in” list is Nevada. It attracts much attention from aspiring entrepreneurs like you who want to avoid paying high taxes. That’s because it doesn’t impose any income taxes, personal and corporate, and levies no franchise taxes. 

Additionally, the state does not require you to create an operating agreement or hold mandatory annual meetings in some states. 

Even though Nevada does require business owners to pay licensing fees and has a gross receipts tax, in terms of privacy, Nevada is arguably the best. They’re the only state that allows absolute anonymity with public fillings. Unlike several other states, Nevada does not have an information-sharing agreement with the IRS. 

Business owners have more privacy because they are not obligated to share their personal information with the government.

Also, since the state has no income tax department, there’s no information or data to hand over. 

The registration process to start an LLC is simpler and less complex, with fewer steps than in other states. 

But like promised, as a business owner, we’ll let you be the better judge:

Pros of setting up an LLC in Nevada:

  1. No personal or corporate taxes
  2. Free of franchise taxes
  3. Owners of LLCs can stay anonymous.
  4. No agreement for information exchange with the IRS
  5. There is no need for yearly meetings or operating agreements.

Cons of setting up an LLC in Nevada:

  1. Yearly license fees for businesses
  2. Annual filing charges
  3. The list of officers and directors is available to the public.
  4. Gross income exceeding $4 million may be taxed.

For any more information, you can contact our team at bestllcsolutions.com

#4 Wyoming

Wyoming is another state that offers low fees and amazing tax benefits for business owners. It is yet another business-friendly state for starting an LLC. Like Nevada, it offers a market-friendly tax structure and doesn’t impose personal, corporate, or franchise taxes. It ranks #1 in the Tax Foundation’s 2023 State Business Tax Climate Index.

Compared to other states, there’s also something unique about Wyoming. It offers a lifetime proxy. Now, you must be wondering what’s a lifetime proxy. Who does it benefit? By using a lifetime proxy, you can appoint another individual to represent your shares or stock in a firm on your behalf by using a lifetime proxy. So, Wyoming business owners can profit from complete anonymity.

The Wyoming regulatory structure is much more flexible than other states, with many rules and regulations informally known as the “corporate red tape.” An obvious example of this could be that other states require you to visit when setting up an LLC physically. But Wyoming has no such requirement whatsoever. 

To be the better judge as an LLC owner, here are some pros and cons listed below for you:

Pros of starting an LLC in Wyoming:

  1. Free of franchise taxes
  2. There are no corporate or personal income taxes.
  3. lower sales tax rates
  4. Less reporting obligations for LLC owners
  5. Lifetime proxy

Cons of starting an LLC in Wyoming:

  1. LLC termination (if a member is dead or has filed for bankruptcy)
  2. Costly administration
  3. Outside of Wyoming, there is no guaranteed asset protection in court proceedings.

For any more information, you can contact our team at bestllcsolutions.com

We believe those were some of the very best states to start an LLC. You can pick and choose whichever state fits the best in your LLC program and requirements. Before you leave, we would like to point out just one tiny detail, which is:

Some things to expect when filling an LLC

It rarely matters where you file for an LLC. Some factors remain the same. Like, no matter which states you pick, you’ll have to pay a filing fee that could go anywhere from $50 to $500. Depending on the state, you must also pay for filing your Articles of Organization. 

Another thing to keep in mind is that if you have an LLC, you need a registered agent. You can name yourself your company’s registered agent, but hiring a professional registered agent service will benefit you. Some states also ask you to prepare an Operating Agreement. Though it isn’t a necessity, we still advise you to get one prepared. In times of crisis, an effective operating agreement may just save your LLC. 

Our last word would be to breathe, think, give it a good sleep or maybe a few days, and then decide. Some states may sound better, but it all rests on you. Any state is the best state to form an LLC for someone willing to put enough dedication and extra effort into their business. An honest, reliable, groundbreaking LLC will work in any state of America!

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Frequently Asked Questions​ (FAQs)

C Corps are generally more preferred by investors due to their ability to issue different classes of stock, facilitate venture capital funding, and potentially go public through an IPO. While, an LLC may face limitations when seeking large-scale investments.

Yes, it is possible to convert between entity types. However, the process can be lengthy, involving legal and tax implications, so it’s crucial to consult experts who can guide you through the conversion process.

Choosing between a C Corp and an LLC depends on your business needs and goals. Small businesses often prefer LLCs due to their flexibility, simplicity, and pass-through taxation. However, C Corps may be more suitable if you plan to attract venture capital or go public.

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