Best States to Form an LLC for an Online Business in 2024

Best States to Form an LLC for an Online Business

Written by:

Carolyn Young has over 25 years of experience in business in various roles, including bank management, marketing management, and business education.

Reviewed by: Sarah Ruddle

For over 15 years, Sarah Ruddle has been a noteworthy leader in the business and nonprofit world.

Best States to Form an LLC for an Online Business

Best States to Form an LLC for an Online Business

When starting an online business, a key decision is choosing which business entity to form. One popular option is a limited liability company (LLC). If you’ve decided on an LLC, you might want to take a minute to consider your options and choose the best state to form it in.

Some states have more favorable laws for LLCs, but forming an LLC in a state with more favorable LLC laws is only sometimes in your best interests. Why might that be the case? This guide lists the best states for LLCs and provides further detail to help you make the best choice for your business. 

Best States for Online Businesses

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.

2. Wyoming

Wyoming is among the best states to form 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 also one of the states that recognize nonprofit LLCs and Series LLCs. A Series LLC allows for segregating 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.

3. Nevada

Nevada is a state that 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 the tax and other benefits outweigh this. 

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

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 specific industries, generally for companies that plan to do business in the state. 

Alaska LLC filing fees are on the expensive side. The fee to form your LLC is $250 to $275, and the biennial report fee is $100.

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 as some states do. 

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

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

Unless you’re planning to relocate to one of these states, forming your LLC in one of these states may not be advantageous, mainly because of the foreign LLC rule. 

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 Delaware, 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.  

Considering all this, the wisest option is to form your LLC in your home state.

In Closing

While some states have more favorable business laws, forming your LLC in your home state is often the best option unless you relocate. Whichever route you choose, it’s always a good idea to talk to an attorney and tax advisor before forming your LLC to ensure you’re making the right choice for you and your business.