A Limited Liability Company (LLC) is a formal business structure that protects the owners of the company from personal responsibility for its debts or liabilities. They are seen as a hybrid between characteristics of a corporation, partnership or sole proprietorship. An LLC structure is popular because they are usually easier and less expensive to operate. You don’t need an LLC to start a business, but the benefits of legally organizing outweigh the cost and hassle of setting one up.
Part of starting your business involves the formalities. In this, you may be trying to decide where you want to form your business. Deciding where to form your business involves many different aspects which can include regulatory burden, workforce availability, taxes, proximity, so forth.
Requirements for LLCs vary by state. Some states are friendlier towards businesses than others. While the formation process and protections are similar across the country, there are details that have a big impact on the ease, filing, and management to maintain the LLC. You shouldn’t blindly form an LLC without having an understanding of the rules, consequences, and the level of reporting and compliance is required on an ongoing basis. Let’s take a look at a few options that will help you narrow your options.
Where should you form?
Home State
Forming an LLC in another state may appear more attractive if they have more advantages. However, forming in your home state is often times a better choice for you. Why? Because if you form an LLC in a different state, your home state may have you register a foreign LLC in the home state. Essentially, you would have to pay for, manage, and register two LLCs. These requirements, costs, and reporting get tedious. It would likely be less expensive to form in your home state in this instance.
Wyoming
In Wyoming, there are fewer tax requirements, no personal income tax, corporate income tax, or franchise fees, and it hosts one of the lowest sales tax rates in the country. Also, Wyoming has an anonymous feature called a “lifetime proxy” that is for business owners that want to remain anonymous when forming an LLC. It only costs $100 to file your business, with an annual fee of $60.
Delaware
With a long reputation as the best state to form a business, it offers low filing fees, low franchise taxes, and an easy formation process. It’s also one of the only states that allows anonymity from personal information on paperwork. The state does not collect corporate income taxes. You, the shareholders, directors, or officers are not required to be a resident of the state, which is an advantage.
Alaska
In Alaska, there aren’t any state or income taxes. Comparative to other states, the filing fees are more affordable. There are loan and incentive programs, tax breaks, and credits rewarded towards certain industries. These credits and opportunities help to keep your costs low when you’re forming your LLC, however you may need to have domestic presence within the state to reap these benefits.
Nevada
There aren’t any personal income taxes, franchise taxes, or corporate income taxes. There isn’t even a state income tax department. Also, the state allows public filings to remain anonymous during the registration process, and doesn’t have an information-sharing agreement with the IRS.
Next Steps
Since, you have a few different options of which states to start your LLC, now is an ideal opportunity for you to start the development process and legally structure your business.