Best states to form an LLC – Forbes Advisor

As you can see, in most cases you’re better off starting your LLC in your home state, even if your home state has higher dues or reporting requirements or higher taxes, or is less business-friendly than any of the “best” states to form an LLC” runners-up below.

2. Delaware

Best for: General business-friendliness, privacy

Delaware is known as the most business-friendly state for corporations. According to the Delaware Corporations 2021 Annual Report, 66.8% of all Fortune 500 companies are incorporated in Delaware.

Among the reasons cited in the report for Delaware’s popularity of business registration are:

The report states that Delaware’s general corporation law is “widely regarded as the most advanced and flexible body corporate law in the country,” while the Court of Chancery is “a unique, centuries-old business court that has written much of modern American corporate law.”

Delaware is also a “nominal LLC” state, meaning it is one of four states (Nevada, Wyoming, and New Mexico are the others) that offer stronger privacy protections to LLC owners.

But if Delaware isn’t your home state, here’s why a Delaware business friendly environment isn’t a reason to form an LLC:

LLCs are not corporations. As you can see, these statistics and details clearly indicate Delaware’s popularity among corporations. But LLCs are not corporations. This means that the General Corporation Law does not apply to LLCs—in fact, LLCs are covered by state limited liability company law.

What about the benefits of the Court of Chancery? According to the Delaware Annual Report, the Court of Chancery is well known for hearing business cases. However, your LLC can only participate in a lawsuit heard in Delaware if the lawsuit is brought in Delaware. If your LLC is not doing business in Delaware, this possibility is very unlikely.

Isn’t anonymity a good thing? While there are benefits to enhanced LLC privacy protections in Delaware, this protection is not guaranteed. For example, you still have to disclose your identity to the LLC and the IRS as well as the banks to open an account.

Additionally, if you are operating your business in your home state, you must register your Delaware-incorporated LLC as a foreign LLC, and chances are the matter of incorporation is a matter of public record.

Of course, if you live in Delaware or only operate your business in Delaware, it may be the best situation to form your LLC.

3. Wyoming

Best for: Low taxes, privacy

Wyoming levies no personal or corporate income tax and has no franchise tax. In fact, it ranks first in the Tax Foundation’s 2022 State Business Tax Climate Index.

Additionally, as mentioned above, Wyoming is one of four states with enhanced privacy protections for LLCs. It also allows you to appoint someone else as your agent to vote on your behalf on matters requiring the consent of LLC members.

But if Wyoming isn’t your home state, that’s why Wyoming’s low taxes and privacy protections aren’t factors when forming an LLC.

Isn’t Wyoming’s Tax Regime Beneficial for LLCs? Although the lack of income tax or franchise tax is beneficial for LLCs operating in Wyoming, if you form your LLC in Wyoming and do no business, you will not receive any tax benefits. And even if you do business there, as well as in your home state or other states, only the income you earn in Wyoming falls under the Wyoming-income-tax regime.

What about privacy protection? As with forming an LLC in Delaware, it’s true that your LLC can enjoy additional privacy protections in Wyoming, but these privacy protections only apply to your Wyoming LLC registration.

Of course, if you live in Wyoming or do your business exclusively in Wyoming, it may be the best state to form an LLC.

4. Nevada

Best for: Low taxes, privacy

Nevada is another state that makes it to the “best state to form LLCs” list online. Similar to Wyoming, although it has a gross receipts tax, the state imposes no income tax, either personal or corporate, or franchise tax.

It is also one of the states that offer more privacy protections to LLCs. However, LLCs are required to file an annual list of members and managers in Nevada. Additionally, the state has higher application fees compared to many other states.

But why Nevada’s low-tax environment and privacy protections shouldn’t be a factor when forming an LLC, if Nevada isn’t your home state:

About those low taxes. As with Wyoming, any income your LLC earns in another state is subject to that state’s tax laws, so Nevada’s lower taxes won’t make much of a difference if your LLC operates in other states.

And those privacy protections? Similar to other states that offer privacy protections, only your LLC registration in Nevada gets this protection. If you do business in any other state, you will need to register your Nevada-incorporated LLC as a foreign LLC, which means your LLC information may be a matter of public record.

Of course, if you live in Nevada or only do business in Nevada, it may be the best state to form an LLC.

5. New Mexico

Best for: Low fees, no annual reporting requirements, privacy

New Mexico offers benefits:

• Lowest LLC Filing Fees (with Arizona and Mississippi)
• There are no annual reporting requirements
• Improved privacy protections

But if New Mexico is not your home state when it comes to forming a New Mexico LLC, why not?

Low application fees and no reporting requirements are great, but… Despite the benefits of setting up your LLC in New Mexico, it still only makes sense to register your LLC there if it’s your home state or if you’re only doing business in New Mexico. Otherwise, you still have to pay the initial filing fee and hire a registered agent in New Mexico.

And privacy? Everything we said about the privacy protections in Delaware, Wyoming and Nevada also applies to New Mexico.

Of course, if you live in New Mexico or only do business in New Mexico, it may be the best state to form an LLC.

at last

Starting an LLC in your home state is usually less of a headache and more cost-effective than forming your LLC in another state because you don’t need to deal with two LLC registrations. But if you’re not sure which state is best for your LLC, consult with an experienced business attorney to help you make the right choice.