- December 29, 2023
- All About LLCs
The most popular question from anyone who wants to form an LLC is, what is the best state to form the LLC. So many people talk about the three good states, Delaware, Wyoming and Nevada.
Like so much else, there is lots of talk and lots of hype, but mostly with little basis. A basic understanding of how LLCs work will reveal the myth behind all the talk, and when it actually comes into play.
LLCs are created by state law. Each state has control over the commerce that takes place within its state boundaries. It has the power to tax and the power to allow business to use its court system.
If you want to do business in a state you must register with that state, regardless of where you live. If you live in the state and work from there, you are doing business in the state. If you live in one state and operate or have sales in another state, the second state makes the rules that determine if your activity in its state constitutes doing business in its state.
Nevertheless there are circumstances that do allow for choosing a state. Passive investing, holding company setup, and choosing a headquarters for a multi state business are a few of them. In those cases these are factors that should be considered. Each business should weight their needs and choose the best place.
Filing fees
State filing fees range from $52 in New Mexico to 10x that amount in Massachusetts. Arizona, Nebraska and New York even have special publishing fees!
Taxes
Different states have different tax rates for LLCs. Some states have no tax while others have all kinds of taxes like corporate, sales and income, and some with fancy names like franchise, excise, etc. Additionally some are more aggressive about what income falls into their domain.
Compliance Requirements
Most states require you to file an annual report and pay an annual fee, with Massachusetts again taking home the grand prize as the most expensive. Some states do not even require annual reporting.
Privacy Protection
Many business owners prefer to stay anonymous for obvious and not so obvious reasons. Different states have different disclosure requirements.
Legal System
Some states have special business courts set up with a rich history of case law and efficient court systems. Some are known to favor shareholders while some favor small business owners.
Asset Protection
While this is one of fundamental reasons to form an LLC, some states are very protective of their LLC owners while others less so.
Each one of these factors are big topics in their own right. There is no one answer that fits all. If you are forming an LLC you should speak to a professional about your specific situation and see what is right for you.
Note: Information provided here is for general knowledge only, consult a lawyer or CPA in your state for specific legal advice.
Tzvi Weiser is an LLC specialist with a rich business background, serving in executive positions in real estate, hi-tech and international marketing. He was a New York lawyer and has an MBA and accounting degree.