Best State to Form an LLC
Choosing the right state to form your LLC is crucial for your business success. We'll help you compare state advantages and find the best fit for your needs.
Quick Answer
For most small businesses: Form in your home state. For online businesses and privacy: Consider Wyoming. For large businesses seeking investment: Consider Delaware.
State Comparison Guide
Compare the pros and cons of popular LLC formation states
Wyoming
Pros
- ✓Strong privacy protection
- ✓Low filing fees (~$100)
- ✓No state income tax
- ✓Business-friendly laws
- ✓Low annual report fee (~$60)
Cons
- ×Must have registered agent in Wyoming
- ×May need to qualify as foreign LLC in home state
Best For
Privacy-focused businesses, online businesses, holding companies
Delaware
Pros
- ✓Well-established business law
- ✓Business-friendly courts
- ✓No sales tax
- ✓Strong legal precedents
Cons
- ×Higher fees (~$90 filing + $300 annual)
- ×Franchise tax requirements
- ×Must qualify as foreign LLC in home state
Best For
Large businesses, companies seeking investment, complex structures
Nevada
Pros
- ✓No state income tax
- ✓Strong privacy protection
- ✓No information sharing with IRS
Cons
- ×Higher annual fees
- ×Must qualify as foreign LLC in home state
- ×More complex reporting requirements
Best For
Asset protection, privacy-focused businesses
Your Home State
Pros
- ✓No foreign qualification needed
- ✓Local legal familiarity
- ✓Easier compliance
- ✓Local banking relationships
Cons
- ×May have higher fees
- ×Less privacy protection
- ×State income tax (varies)
Best For
Local businesses, service providers, retail operations
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Best State to Form an LLC 2025
Detailed Analysis and Practical Advice
Summary
For most individuals, it is generally advisable to establish your LLC in your home state. This is because your LLC is considered to be conducting business in that state. Even if you create an LLC in a different state, you will likely need to register it as a foreign LLC in your home state. This is true even if you operate your business from home. Setting up an LLC in states like Delaware, Nevada, or Wyoming can often be more complicated and expensive.
There are four exceptions to this recommendation:
California Residents
Non-US Residents
Real Estate Investors
Wyoming Holding Companies
You might have heard statements like:
• "Nevada has no corporate income tax."
• "Wyoming LLCs are the most cost-effective."
• "Delaware is the best state for forming an LLC!"
In reality, these claims are often misleading and not relevant for most LLC owners.
Domestic LLC vs. Foreign LLC
Creating an LLC in your home state is referred to as a Domestic LLC. If you establish an LLC outside of your home state, you'll need to register it as a Foreign LLC in your home state.
Example:
If you create an LLC in Nevada but reside elsewhere, you must register that Nevada LLC in your home state as a Foreign LLC to legally operate there.
This entails:
- • Managing two LLC filings (one in Nevada and one in your home state)
- • Paying two state filing fees
- • Hiring a Registered Agent for the Nevada LLC
- • Paying two Annual Report fees
In summary, this could lead to double the costs and double the administrative work due to maintaining two LLC filings.
Wyoming
Wyoming also has less fraudulent activity compared to Nevada but is similarly overhyped. The disadvantages of forming an LLC outside your home state, including higher costs and complexity, often outweigh any perceived benefits.
Delaware
Delaware is known for its business-friendly environment, with over 50% of U.S. publicly traded corporations and 60% of Fortune 500 companies incorporated there. However, these benefits mainly apply to large corporations.
If you form an LLC in Delaware but do not live there, you'll still need to:
- • Register your Delaware LLC as a Foreign LLC in your home state
- • Pay for a Registered Agent and Annual Report fees in both states
Forming an LLC in Delaware is advantageous if you live there or if your business operates in Delaware.
Home State vs. Other States
Forming your LLC in your home state is typically the best option to avoid unnecessary costs and administrative burdens. Attorneys Alexander J. Davie & Dana Shultz agree that the best state to form an LLC is usually your home state.
Online Business
If you run an online business, it is still advisable to form an LLC in your home state, as this is where you are primarily conducting business. The location of your customers does not determine where you should form your LLC.
Seller's Permits
Many small business owners face issues after forming their LLC in the wrong state. For example, a business owner in California who forms an LLC in Utah will need to register as a Foreign LLC in California to obtain a seller's permit, leading to additional costs and administrative work.
Form an LLC in Your Home State
Forming your LLC in your home state is generally the most cost-effective and straightforward approach. Most business owners conduct their business activities from their home state, making it the logical choice for LLC formation.
Taxes Are Paid Where Money Is Made
Many individuals are misled into forming an LLC in states with no income tax, like Nevada, thinking they will save on taxes. However, this is not accurate.
For instance, if you form a Nevada LLC but conduct business in your home state, you'll still need to pay taxes in your home state because that's where you're generating income.
A useful reminder is: Taxes are paid where money is made.
Nevada
Many claims about the benefits of forming an LLC outside your home state are exaggerated. States and companies promoting these benefits gain financially from the LLCs created there. For example, Nevada generates approximately $3 million annually from LLC formation fees. Despite the hype, fewer LLCs are formed in Nevada compared to other states, and the state has a high incidence of fraudulent activity. Forming an LLC in your home state is generally more practical unless you reside in Nevada.
State Fines and Penalties
All state governments enforce regulations requiring an LLC to be registered as a Foreign LLC if it is conducting business within their state. This enforcement can involve fines, penalties, interest, court costs, and even suspending the LLC's ability to conduct business.
Connecticut Example:
In Connecticut, the Secretary of State and the Attorney General's office collected $1.3 million from businesses operating without registration as foreign entities. Fines ranged from a few hundred dollars to $30,795, with an average fine of $4,600.
According to Section 34-275a of the Connecticut LLC Act, if an out-of-state LLC conducts business in Connecticut without registering as a Foreign LLC within 90 days:
- • A $300 per month penalty is imposed
- • The LLC owes income taxes and fees for all years it was not registered
- • Interest and penalties are charged on unpaid taxes and fees
- • The Attorney General can sue to recover all dues
- • The LLC cannot initiate lawsuits in Connecticut but can defend itself
- • The LLC cannot conduct business in Connecticut until all penalties, interest, and court costs are paid
Detailed Exceptions
There are a few exceptions where forming an LLC outside your home state might be advantageous:
California Residents
If you live in California, you will likely be conducting business there, regardless of where you form your LLC. Therefore, it's best to form an LLC in California or register your out-of-state LLC as a Foreign LLC.
Non-U.S. Residents
Non-U.S. residents can form LLCs in any state, but if you have a physical presence or employees in the U.S., you should form your LLC in that state. For online businesses with no physical presence in the U.S., any state can be chosen. Consult an accountant familiar with non-resident alien taxation to determine the best state for your specific business needs.
Real Estate LLCs
For real estate investments, form your LLC in the state where the property is located. If you form an LLC in your home state and purchase property in another state, you will need to register as a Foreign LLC in that state, resulting in additional costs and administrative requirements.
Wyoming Holding Company
Real estate investors with multiple properties in various states might consider setting up a holding company in Wyoming, which then owns LLCs in the states where the properties are located. Consult an attorney or accountant for guidance on setting up a holding company.
Frequently Asked Questions about Choosing the Best State for an LLC
Does forming an LLC exempt you from corporate income taxes?
No, forming an LLC does not exempt you from corporate income taxes, as LLCs are not subject to corporate income tax in the first place. An LLC is a Limited Liability Company, not a corporation, so it doesn't have corporate income taxes to pay. Instead, LLCs use pass-through taxation. This means the responsibility for taxes passes through the LLC to the individual owners, who then report the business's income on their personal tax returns (Form 1040). Note: The exception is for LLCs that opt to be taxed as a C-Corporation, though this is uncommon.
What is the least expensive state to form an LLC?
Montana is often considered the least expensive state to form an LLC. However, it's advisable to form an LLC in Montana only if you live or conduct business there. Montana offers tax advantages for residents or businesses operating within the state. If you don't live or do business in Montana, you'll need to register your LLC twice: as a domestic LLC in Montana and as a foreign LLC in your home state or where your business operates. This dual registration results in paying annual fees in both states, possibly needing two registered agents, which quickly increases costs.
What state should non-US residents form an LLC in?
If you're a non-US resident or non-US citizen (and you don't have US employees or an office, store, or warehouse in the US), you can form your LLC in any state. Popular options are Wyoming and Delaware. However, we personally recommend Ohio because it's more affordable (there's no Annual Report) and the paperwork is very simple. We don't think the reputation of Delaware is that important, or worth the extra cost.
Non-Resident Costs Comparison:
- • Wyoming LLC: State fee $100, Annual Report $60/year
- • Delaware LLC: State fee $90, Annual Report $300/year
- • Ohio LLC: State fee $99, No Annual Report
If you have a physical location in the US (like an office, storefront, or warehouse) or you have employees in the US, it's best to form your LLC in the state where you're transacting business. For most, this is where their physical location is, or where most of their employees are located.
Deal Alert!
Northwest will form your LLC for $39 (60% discount). See details
Real Examples
Case 1: Currency Trading LLC Formation
Background:
Joshua Wilson and four friends, residing in different states (NY, Illinois, California, and Michigan), are involved in currency trading without outside investment or customers.
Situation:
They need to form a business entity for their currency trading activities.
Challenge:
Deciding which state to form their LLC in, considering they operate across multiple states.
Solution:
Sara Parker advised that the state choice would not impact personal taxes, as the LLC would be a pass-through entity. She suggested forming the LLC in Michigan for simplicity and handling foreign qualifications if necessary.
Now:
The group likely formed their LLC in Michigan, focusing on their trading activities without worrying too much about compliance details initially.
Case 2: YouTube Channel LLC Formation
Background:
A father with a teenage son in Massachusetts who runs a successful YouTube channel generating ad revenue.
Situation:
The father wants to set up an LLC for liability protection instead of operating as a sole proprietor.
Challenge:
Massachusetts has high costs for LLC formation and maintenance ($500 setup and annual fees). The father is considering forming an LLC in another state to avoid these fees but is unsure if it will require foreign registration in Massachusetts.
Solution:
Sara Parker explained that forming an LLC in another state could lead to the need to register as a foreign LLC in Massachusetts, incurring additional costs. The LLC would still be considered transacting business in Massachusetts because it operates from home.
Now:
The father is considering forming an LLC in a state like Ohio, known for its simplicity and lower costs, while keeping in mind the possibility of needing to register as a foreign LLC in Massachusetts.
Case 3: Convention Organizer LLC Formation
Background:
Oscar, a convention organizer, resides and operates from different states, primarily on the West Coast.
Situation:
Oscar is considering forming an LLC in New Mexico for his business activities.
Challenge:
Understanding the tax implications and whether New Mexico is the best choice for his LLC.
Solution:
Sara Parker inquired about Oscar's primary residence and work location, which would impact the state of formation and tax obligations.
Now:
Oscar is evaluating his residency and business operations to determine the most suitable state for his LLC formation, possibly considering other states where he operates.
Case 4: International Business Owner LLC Formation
Background:
Elvis Kelechian, residing outside the U.S., wants to form an LLC for his online web hosting business. He previously lived in Arizona.
Situation:
Elvis is considering forming a Wyoming LLC due to its favorable regulations.
Challenge:
Determining if Wyoming is the best choice and how his ties to Arizona might affect his decision.
Solution:
Sara Parker confirmed that Wyoming is a good option, even with Elvis's Arizona ties, and suggested considering Ohio for its low filing fees and ease of paperwork.
Now:
Elvis is exploring Wyoming and Ohio as potential states for his LLC formation.
Case 5: Rebranding Business LLC Formation
Background:
Jo lives in both Georgia and Florida and is rebranding a business offering online services.
Situation:
Jo is considering forming an LLC in Ohio instead of one of her home states.
Challenge:
Understanding if she would need foreign registration in her home states.
Solution:
Sara Parker advised that foreign qualifications are not strictly enforced in Georgia and Florida, allowing Jo to form an LLC in Ohio if desired, while remaining mindful of potential future foreign qualification needs.
Now:
Jo is likely forming an LLC in Ohio, aware of the possibility of needing foreign registration in Georgia or Florida later.
Case 6: Rental Arbitrage LLC Formation
Background:
Tamika, based in Maryland, plans to start a rental arbitrage LLC for short-term and mid-term rentals.
Situation:
Tamika is considering forming her LLC in Wyoming due to potential tax savings but is uncertain about the impact of generating income in other states.
Challenge:
Determining if she should form the LLC in Maryland or one of the states where she plans to generate income.
Solution:
Sara Parker clarified that LLCs are pass-through entities, and Tamika would pay taxes on her 1040 tax return. She would need to file state returns and apportion income appropriately if generating income in multiple states.
Now:
Tamika is likely forming the LLC in Maryland, focusing on proper tax filings for her rental activities.
Case 7: Nomadic Business Owner LLC Formation
Background:
Kevin, a mountain guide, has legal residence in Florida but operates nomadically, mainly in Utah and the Western U.S.
Situation:
Kevin is considering forming an LLC in Florida versus where he does most of his business.
Challenge:
Forming an LLC without a permanent physical address in the state.
Solution:
Sara Parker suggested forming an LLC in Florida due to the stability of his Florida address and using a Registered Agent Service if needed.
Now:
Kevin is likely forming an LLC in Florida, using a Registered Agent Service to handle state requirements.
Case 8: Anonymous LLC Formation
Background:
Phil, based in Illinois, wants to create an anonymous LLC for his online retail business.
Situation:
Phil is considering forming a New Mexico LLC for anonymity but needs to register it as a foreign LLC in Illinois.
Challenge:
Ensuring owner anonymity while complying with Illinois requirements for foreign LLCs.
Solution:
Sara Parker explained that Illinois requires Managers or Members to be listed, potentially exposing ownership. Phil could hire someone as the LLC Manager to maintain anonymity.
Now:
Phil is considering forming a New Mexico LLC and hiring a Manager to keep ownership anonymous while registering as a foreign LLC in Illinois.
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