As you can see, in the majority of cases, it’s best to start your LLC in your home state, even if your home state has higher fees or reporting requirements or higher taxes, or is less business-friendly than one of the “Best States to Form an LLC” finalists below.

2.Delaware

Best for: Global business friendliness, privacy

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

Some of the reasons given in the report for Delaware’s popularity for business registrations include:

The report notes that Delaware’s General Corporations Act is “widely regarded as the most advanced and flexible business formation law in the nation,” while the Court of Chancery is “a unique business court , centuries old, who wrote most of the cases of modern American societies. right.”

Delaware is also an “anonymous LLC” state, meaning it’s one of four states (Nevada, Wyoming, and New Mexico are the others) that offers LLC owners more privacy protections. solid.

But here’s why Delaware’s business-friendly environment isn’t a factor when it comes to forming an LLC, if Delaware isn’t your home state:

LLCs are not corporations. As you can see, these statistics and details clearly indicate the popularity of Delaware among businesses. But LLCs are not corporations. This means that the general companies law does not apply to limited liability companies. In fact, LLCs are covered under the state LLC law.

What about the benefits of the Court of Chancery? As Delaware’s annual report indicates, the Court of Chancery is well known for being supportive of case-related prosecution hearings. However, a lawsuit in which your LLC may be involved will only be heard in Delaware if the suit was brought in Delaware. If your LLC is not actually doing business in Delaware, the chances of this happening are unlikely.

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

Additionally, if you are operating your business in your home state, you will need to register your Delaware-formed LLC there as a foreign LLC, and chances are the filing will be public knowledge.

Of course, if you reside in Delaware or operate your business solely in Delaware, that would probably be the best state to form your LLC.

3.Wyoming

Best for: Low taxes, privacy

Wyoming does not tax income, whether personal or business, nor does it have a franchise tax. In fact, it ranks first in the Tax Foundation’s 2022 State Corporate 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 another person as your proxy, to vote on your behalf in matters requiring the consent of LLC members.

But here’s why Wyoming’s low taxes and privacy aren’t a factor when it comes to forming an LLC, if Wyoming isn’t your home state:

Isn’t Wyoming’s tax system advantageous for LLCs? Although the absence of income taxes or franchise taxes is beneficial for LLCs doing business in Wyoming, if you only form your corporation in Wyoming and do not do any activity, you will not benefit from any tax advantage. And even if you were doing business there, as well as in your home state or other states, only the income you earn in Wyoming would fall under Wyoming’s tax-free income tax system.

What about privacy protections? As with forming an LLC in Delaware, it is true that your LLC may enjoy more privacy protections in Wyoming, but you will only have those privacy protections on your Wyoming LLC registration.

Of course, if you reside in Wyoming or operate your business solely in Wyoming, that would probably be the best state to form your LLC.

4. Nevada

Best for: Low taxes, privacy

Nevada is another state that is on online lists of “best states to form LLCs.” Similar to Wyoming, the state does not impose any personal or corporate income taxes, nor does it levy franchise taxes, although it does have a gross receipts tax.

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

But here’s why Nevada’s low-tax environment and privacy protections aren’t a factor when it comes to forming an LLC, if Nevada isn’t your home state:

About those low taxes. As is the case with Wyoming, Nevada’s low taxes won’t make much of a difference if your LLC also does business in other states, because any income your LLC earns in another state will be taxed under the state tax laws.

And those privacy protections? As in other states that offer privacy protections, only your LLC registration in Nevada has access to this protection. If you are doing business in another state, you will need to register your Nevada-formed LLC as a foreign LLC, which means your LLC information will most likely be in the public domain.

Of course, if you reside in Nevada or operate your business solely in Nevada, that would probably be the best state to form your LLC.

5. New Mexico

Best for: Lowest fees, no annual report requirements, confidentiality

New Mexico offers a trio of advantages:

  • Lowest LLC filing fees (with Arizona and Mississippi)
  • No annual reporting requirement
  • Enhanced Privacy Protections

But here’s why this trio of benefits offered by New Mexico isn’t a factor when it comes to forming an LLC, if New Mexico isn’t your home state:

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

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

Of course, if you reside in New Mexico or operate your business solely in New Mexico, that would probably be the best state to form your LLC.

Conclusion

Starting an LLC in your home state is generally less of a hassle and more profitable than setting up your LLC in another state because you don’t have to manage two sets of LLC registrations. But if you’re not sure which state is best for your LLC, consult an experienced business attorney who can help you make the right choice.

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