Disclosure: We may earn a commission if you click on any of our links.
It is crucial to choose the right place for your LLC. This guide will help determine the best state to start your business. This guide covers key decision factors such as ease of startup, LLC fees, and taxation.
The Best LLC Services for Any State
No matter which state you’re looking to create an LLC in, ZenBusiness is our top recommendation. It starts at $49 plus any state fees. Create your LLC in any state within 10 minutes
All of the top LLC services are available to help you start your business in any 50 states.
- ZenBusiness Best for Most
- Incfile Best Range of LLC Services
- LegalZoom is Best for speaking with Attorneys
- Inc Authority Best for Avoiding Service Fees
- BizFilings- The Best Way to Choose the Right Entity Type
It is important to form an LLC in the right state
The requirements for LLCs vary from one state to the next. Some states are more business-friendly than others.
Although the process of forming LLCs is similar across the country, some details can make it more difficult to manage and start your LLC.
It will also vary depending on where you live.
It costs $50 to file LLC paperwork in New Mexico, but $500 to create an LLC in Massachusetts. Massachusetts LLCs must pay a $500 annual fee each year. Pennsylvania LLCs only need to pay $70 every ten.
State income taxes do not apply to LLCs or members of LLCs located in certain locations. Some states have higher income taxes, and require LLCs to pay a minimum fee to be able to franchise.
Other than cost, compliance requirements and reports can be problematic and a burden in certain states.
Everything will go smoothly if you create an LLC in the correct state. It’s quick and easy to file your documents. You can also follow all the requirements to maintain good standing with the state. The formation fees, annual fees, and taxes should be minimal.
You can’t simply form an LLC without knowing the rules and consequences. This could be costly for your company.
Businesses are often penalized each year for operating illegally. This is something you want to avoid. Although a state may be attractive to you for setting up an LLC, that doesn’t necessarily mean it is the right place for you.
The Best States for forming an LLC
It doesn’t matter where an LLC is formed, it helps to have someone to help you. For new entrepreneurs, it can be difficult to get organized, prepare the paperwork, pay the fees, and file the proper paperwork with the correct government agency. Even if this is something you have done before, it might be different if your business is starting in a new country.
You should consider using a service for LLC formation like ZenBusiness.
ZenBusiness offers LLC formation services across all 50 states. This service is great because you don’t need to fill out paperwork or fill out applications. ZenBusiness will take care of all this for you.
You can also get a wide range of services from them that will help you start or run your LLC. Register agent services, DBA name registrations, annual report services, and many more are available.
This will make your life easier. ZenBusiness will help you make your LLC official once you have determined the best state for it.
We’ll be taking a closer look at which states are best for forming an LLC. The following five options should help you narrow down your choices.
#1 — Your Home State
While some states may seem more attractive than others to form an LLC, there are certain advantages to doing so. However, most people will choose to form an LLC in their home state.
Here’s why.
Let’s suppose you’d like to create an LLC in Florida, which doesn’t have a state income tax. This sounds appealing, right? However, you would still need to register a foreign LLC within your home state. If you want to create an LLC in Florida but live in California, you will need to register two LLCs.
You will need to pay two filing fees, file two annual reports, and pay two annual fees. Even more, you will need to appoint registered agents in two states. These additional costs, filing requirements, headaches, and hassles are not always favorable. If you create an LLC in another state than your home, you will likely spend more money.
#2 — Wyoming
Wyoming has fewer tax requirements, making it a desirable state for LLC formation. Wyoming does not collect personal income taxes, corporate income taxes, or franchise fees. The state has one of the lowest rates for sales taxes in the country.
Wyoming has a “lifetime proxy” which allows business owners to keep their identities private when forming an LLC. You can appoint another person to represent your stock.
For Wyoming LLCs, there is a $100 filing fee and an annual fee of $60 for the secretary of state. ZenBusiness’ annual reporting service will prepare and file your report for you.
#3 — Delaware
Delaware is known for being the “holy grail” state to set up a business. It’s a state that is business-friendly, with low filing fees and franchise taxes and an easy formation process. Delaware is the only state that allows you to omit personal information on your formation paperwork. This is great for anonymity.
Delaware doesn’t collect corporate income taxes if you create an LLC.
Not only are shareholders, directors, and officers not required to reside in Delaware, but it is also important to note that Delaware residents are not required. You can appoint one person to perform all these duties.
Delaware also has Chancery Court. This is a court that only handles business matters. Any legal matter that involves your company will be dealt with quickly, and not through the general courts.
#4 — Alaska
Alaska is another state that does not have a sales tax and no state income taxes. The LLC filing fees are also relatively low in comparison to other states.
Alaska offers tax credits as well as a variety of loan programs for new businesses. Credits are available for oil and gas services as well as mineral exploration, film production, and new area development.
When you form a new LLC, these tax credits and loan options can help to keep startup costs down. However, to be eligible for these tax credits and loan opportunities, you will need to have an operating presence in the state.
#5 — Nevada
Nevada, like many other states on this list, doesn’t have any income taxes for individuals, franchise taxes, or corporate income taxes. Nevada does not have an income tax department, as it doesn’t meet these tax requirements.
This state is great for LLCs that value privacy. Nevada permits public filings to be anonymous during registration.
Nevada does not have an information-sharing agreement with the IRS.
Operating agreements are not required for LLCs in Nevada. However, it is in your best interests to have one.
Here are some tips and strategies to help you choose the best state for forming an LLC
Although the above states are attractive for many reasons, it is important to do your research before you make a decision. These tips will help you choose the best state for your LLC and keep it there for the long term.
Strategy 1 — Don’t forget the short-term and one-off fees
When comparing LLC requirements between states, it’s easy for people to become discouraged. You might find that your home state has significantly higher filing fees or annual fees than neighboring states.
The filing fee is only a once-in-a-lifetime expense. It’s a cost of doing company, so don’t be too concerned about it.
It is not a good idea to search for LLC fees per state and make that your only decision. You can live in a state that has low filing fees. It’s not impossible to get a better deal if you have to pay more.
Strategy #2 — Don’t move just to start a business (In most cases)
While some states make it very appealing to set up an LLC, others have the opposite effect. You might want to consider moving to another state if you are subject to high-income taxes, high franchise fees, or other high-cost costs.
This is an extremely drastic decision and one you should reconsider.
No matter where your LLC is located, there’s no guarantee it will succeed. It can be risky to move your family and your life to a different state. It’s important to consider your quality of living and how it could change in a new place.
It depends on what type of business you are starting, there might not be a market in your area for your products and market services in Los Angeles. It doesn’t necessarily mean that a particular location is the best for you to open an LLC.
In certain situations, it may be worthwhile to move. Perhaps the state where you grew up is tax-friendly for businesses. It’s likely that you know the market well and have relatives there. This is a great decision for personal and professional reasons.
However, it is generally not worth the extra cost of moving to another state if you consider the savings that can be made by forming an LLC.
Strategy #3 – Make sure you understand your compliance requirements
The first step in forming an LLC is to register it. You must also maintain good standing with the state while your LLC is in operation.
This is something you should keep in mind when your business grows.
We explained earlier that LLCs in Alaska don’t need to pay sales tax or state income taxes. But, there are tax rules that apply to certain Alaskan cities and counties. You might have to register with the local agency depending on where you live and pay quarterly or annual taxes.
You should be cautious if your operations expand beyond the state borders. Refer to the example of Connecticut’s out-of-state LLC being fined in the guide.
Do not assume these companies deliberately tried to avoid paying fees. They may have just expanded without knowing what requirements they had to meet. They could have avoided paying penalties of tens to thousands of dollars if they had simply registered with the state.
Next steps
Now that you know the best places to form an LLC, it is time to get started on the legal formation of your business.
This process is easier if you use a formation service, as we mentioned. ZenBusiness can be a great option. However, you can also check our list of best LLC services to find other solutions.
You will need to appoint an agent. The requirements for a registered agent vary from one state to the next, much like LLC guidelines. You can refer to our guide for the requirements of registered agents in all 50 US states.
