Best States to Form an LLC

Every state has laws for limited liability companies (LLCs), and some are more favorable than others. As a result, in some instances, it’s advantageous for a business owner to choose one of these states. But what are these situations, and how do you know if your business qualifies? 

Read on to learn all about the best states for forming an LLC and why one just might be the right place for your business – or might not. 

1. Delaware

Delaware has favorable laws for LLCs. Delaware does not tax out-of-state income, so if you do business in other states, there will be no Delaware state tax. In addition, the fee to form your LLC is only $90, and franchise taxes are low. 

Delaware also has the Chancery Court system, which allows businesses to settle disputes quickly. In addition, Delaware has the highest liability protection for members, reduced fiduciary duties, and the most favorable business laws in the US.

Here are the key benefits of forming an LLC in Delaware:

• Business-Friendly Laws: Delaware has a well-established legal system for businesses, particularly its Court of Chancery, which is renowned for resolving corporate disputes efficiently without juries.
• Privacy: Delaware allows for greater privacy for business owners by not requiring the disclosure of member or manager names in public records.
• Flexibility: Delaware law provides significant flexibility in structuring the management and organization of an LLC.
• Tax Benefits: No state income tax for businesses that operate outside Delaware. Additionally, Delaware offers a favorable tax structure, including no sales tax and low franchise taxes.

2. Wyoming

Wyoming is among the best states for forming an LLC. It has no state income or corporate tax and no franchise taxes. In addition, forming an LLC in Wyoming is simple, and no operating agreement is required. 

Wyoming is among the few states that recognize nonprofit LLCs and Series LLCs. A Series LLC allows for the segregation of members’ interests, assets, and operations into independent series. Each series is its entity and can have its record keeping and finances. 

Wyoming also offers more liability and limited fiduciary duties for LLC members.

Here are the key benefits of forming an LLC in Wyoming:

• Low Fees: Wyoming boasts some of the lowest LLC formation and annual fees in the United States.
• Privacy: Wyoming provides strong privacy protections, not requiring the disclosure of member or manager names to the state.
• Tax Benefits: No state income tax and no franchise tax on LLCs. Additionally, Wyoming does not impose corporate income tax or gross receipts tax.
• Asset Protection: Wyoming offers strong asset protection laws, particularly for single-member LLCs.

3. Nevada

Nevada offers a few advantages for LLCs. There is no state income tax for LLCs, corporate or franchise taxes, or personal state income tax. Nevada LLC filing fees are higher, at $425, and they have annual filing fees, but many business owners think the advantages outweigh this. 

Nevada also has substantial liability and privacy protection, no operating agreement or annual meeting requirements, and very favorable business laws.

Here are the key benefits of forming an LLC in Nevada:

• No State Taxes: Nevada does not impose state income tax, corporate tax, or franchise tax on LLCs.
• Privacy: Nevada offers high levels of privacy protection, not requiring the disclosure of member or manager names in public filings.
• Business-Friendly Regulations: Nevada has business-friendly laws and regulations, making it easier to manage an LLC.
• Strong Asset Protection: Nevada provides strong protections against personal liability for business debts and obligations.

4. Alaska

Alaska has several benefits for LLC owners. It has no state income tax or sales tax, although cities can collect local sales taxes. It also offers tax credits for certain industries, though these are generally for companies that plan to do business in the state. 

However, Alaska’s LLC filing fees are high: formation costs $250 to $275, and biennial reports are $100.

Here are the key benefits of forming an LLC in Alaska:

1. No State Income Tax: Alaska does not impose a state income tax on businesses or individuals, which can be advantageous for LLC owners.
2. Low Operating Costs: Alaska offers relatively low operating costs and fees for maintaining an LLC.
3. Strong Asset Protection: Alaska has robust asset protection laws, which can help shield business assets from creditors.
4. Business Incentives: The state provides various incentives for businesses, particularly in certain industries like natural resources and technology.

5. South Dakota

South Dakota is one of the best states to form an LLC. It has no state income tax and a 0% corporate tax rate, which is great if you choose to have your LLC taxed as a corporation. It also has no business inventory tax. 

The LLC filing fee for South Dakota is $150, and the annual report fee is $50. 

Here are the key benefits of forming an LLC in South Dakota:

• No State Income Tax: Like the other states listed, South Dakota does not have a state income tax, which is beneficial for LLC owners.
• Low Fees: South Dakota has low formation and annual maintenance fees for LLCs.
• Favorable Business Climate: The state offers a business-friendly environment with favorable regulatory conditions and incentives.
• Asset Protection: South Dakota offers strong protections for LLC assets, including laws that protect against the seizure of business assets by creditors.

But Is It Best to Form Your LLC in One of These States?

Unless you’re planning to relocate, forming your LLC in one of these states may not be advantageous, mainly because of the foreign LLC rule. A foreign LLC is an LLC doing business in a state other than the one originally registered. 

States have different definitions for doing business in the state; review the secretary of state’s guidelines. Generally, you’re considered to be doing business in the state if:

• You have a physical presence of any kind in that state, including owning property in your business name
• You have employees in that state
• You regularly meet with clients, managers, investors, or business partners in that state.
• You’re licensed to do business in that state.

So, if you do business in your home state but register your LLC in another state, you’ll also need to register as a foreign LLC in your home state. This means you’ll have to do twice the paperwork and abide by all regulations and tax laws in both states.

If you form an LLC in Wyoming, for instance, yet mainly do business in Florida, you’ll have to register as a foreign LLC in Florida and abide by both states’ laws and tax regulations.