Best States to Form an LLC 2024: It All Starts With Home

Vault’s Viewpoint

• Every state has different requirements and advantages for your LLC, such as no income tax or no annual filing fees.
• Your home state is generally the best state in which to form your business, but Delaware stands out from the rest with its tax advantages and privacy protections.
• When choosing the best states to form an LLC, consider factors like legal liability, fees, privacy and ease of use to help you find the best state for your business.

What is the Best State to Form an LLC?

These are the best states to form an LLC for your budding business, starting with your home state.

Home State: Best State to Form an LLC Overall

Some states are far better than others when forming an LLC. However, nothing is better than your own home state. This must be the state where you not only live but also where you conduct business, collect money and have member meetings.

Your home state is typically the easiest state in which to form an LLC, as well as the most cost effective. If you create an LLC in a state other than your home state, you may be subject to higher costs. There may also be greater requirements to maintain your LLC, especially if you form multiple LLCs. However, you will not be taxed twice unless you operate your business in multiple states.

There is also the matter of support. Should you choose to hire a tax or business attorney, you can benefit from a local professional who is well-versed in your state’s laws and is available to meet with you one-on-one when you need to create and file documents.

Delaware: Best State to Form an LLC for Growing Businesses

Other than your home state, Delaware is the best state to form an LLC. Its General Corporation Law is revered nationally for its flexibility, which is why it is especially popular for corporations. Almost 67% of all Fortune 500 companies are incorporated in Delaware, and it is also home to 93% of companies that have gone public.

Delaware’s Court of Chancery has played a pivotal role in the creation of today’s corporation law and the Limited Liability Company Act, and LLCs have benefited from this expertise. The Chancery Court hears exclusively business cases, so cases tend to move much more swiftly here than in other states.

One of the most notable benefits of opening an LLC in Delaware is the tax policy. Delaware is a state with no sales tax, which could save your business a fortune each year. If you do the majority of your business out of state, Delaware wins again because it does not tax out-of-state income.

Delaware is also one of the best LLC states for privacy. It is one of four states that protect the personal information of LLC members by keeping it private. Nevada, Wyoming and New Mexico are the only other states that offer this protection.

If you want to create an LLC in Delaware, you can complete a Certification of Formation of a Limited Liability Company and pay a $110 filing fee. This form is filed with the Secretary of State and requires an annual $300 franchise tax. No annual reports are required, which saves you a ton of time and hassle each year.

Nevada: Best State to Form an LLC For Privacy

Nevada has a very favorable taxation system for business owners. There is no personal income tax, nor are there any taxes assessed on business income or capital gains. If you operate a franchise, there is the added benefit of no franchise taxes. There is, however, a gross receipts tax, and you will also pay fees for your business license with its accompanying filing fees.

Nevada is known for its privacy protections for LLC members. It is considered an anonymous state because it will privatize your LLC registration, protecting that information from public view. You will still need to file a list of your members and managers every year, and Nevada imposes higher filing fees than some states. However, its approach to taxes makes it worth it. Because there is no personal or corporate income tax, Nevada does not need to share information with the IRS, adding another layer of protection to member privacy.

Like Delaware’s Chancery Court, Nevada offers a specific court dedicated to business matters. This means that cases get processed quickly because they do not have to compete with other types of cases. Filing times are also speedy, which helps you get your LLC formed much faster than with other states that are clogged up by backlogs. Getting started is simple, too; Nevada offers an online tool to help with the formation of your digital operating agreement.

The filing fee for a Nevada LLC is $75 for the articles of organization and $150 for your member list. There is also a $200 business license fee. After your first year, the annual fee is $150 for the Annual List and $200 for your business registration.

New Mexico: Best State to Form an LLC for Easiest Renewal

There are many reasons why you should form an LLC in New Mexico: Fees are low, and requirements are more lax than in other states. Privacy protections are an added benefit; New Mexico does not require that you disclose your members or managers so you can maintain the privacy of your management.

To create your LLC, you must file the articles of organization online with New Mexico’s Secretary of State and pay a $50 fee. It typically takes just one to three days for processing. No operating agreement is required, but it is still recommended for added protection. There also is no annual filing fee since no annual report is required. All LLCs must obtain a New Mexico Business Tax Identification Number, which is available for free.

New Mexico also requires that you appoint a registered agent for your LLC. The LLC cannot serve as its own registered agent, but you can appoint another domestic or foreign business instead. A physical address is required within the state.

No general business license is required, although some industries may require a special license. However, some local business fees can run anywhere from $35 to $400, depending on whether your business has physical locations that also require fire and safety permits.

Wyoming: Best State to Form an LLC for Low Taxes

There are two major benefits to filing an LLC in Wyoming: low taxes and privacy protection.

Wyoming assesses no income tax on personal or corporate earnings. Like Nevada, there are no franchise taxes either, making it also the best state to form an LLC for businesses with multiple locations. Wyoming received a number one ranking in the 2022 State Business Tax Climate Index by the Tax Foundation.

As a state with enhanced protections, Wyoming offers an easy way to keep your company’s member information private. Instead of filing your personal details, you can use a proxy who will handle certain matters on your behalf. The proxy’s information is made public while yours remains hidden. With no taxes to report, you also receive added privacy from the IRS.

Wyoming was home to the first LLC, so its government has a long history of serving this specific type of business entity. Its laws are well-developed, and it has a chancery court to expedite business hearings so cases are heard in a more timely manner than in other states.

Filing an LLC in Wyoming is affordable. The articles of organization cost $100 to file. An annual report is required, but the fee is $60 and up, based on your total assets.

What is an LLC?

An LLC is a type of business entity established by state governments. Its owners are called members, and they may be individuals, corporations, foreign entities or even other LLCs. There is no limit to the number of owners for a specific LLC, but most of these businesses tend to be single-member LLCs with just one owner. Some businesses, like banks and insurance companies, cannot be LLCs.

There are two types of LLCs:

• Domestic LLCS: A domestic LLC is registered in its home state.
• Foreign LLCs: A foreign LLC is registered in a state other than where the owner lives.

Regulations vary by state on topics such as fees and annual reporting requirements. There may also be different regulations for domestic versus foreign LLCs.

What are the Benefits of an LLC?

Although they have many benefits, the main reason for an LLC is to protect an owner’s personal liability for business affairs. Here, we take a closer look at the many advantages of an LLC for your business.

Reduced Liability

As the name implies, an LLC provides limited liability for its members. This means the owner’s personal assets are protected from collection and litigation if the business falls into debt or goes bankrupt.

Taxation

With an LLC, members can file LLC profits and losses on their own individual income tax returns. This eliminates corporate taxes, saving the company money.

When tax time comes, there are three ways to treat an LLC. You can file the LLC as a corporation, partnership, or a disregarded entity that is a part of the member’s personal tax return. An LLC with one owner is considered a single-member LLC, but LLCs with at least two members are automatically classified as a partnership by the IRS unless the member makes a specific filing to treat it as a corporation instead.

A business tax attorney can help you explore your options to find the best LLC classification for your company’s specific needs.

Ease of Use

LLCs are the easiest types of businesses to create and manage. Requirements are much more lax than other business structures as the LLC skips the need for a board of directors and regular shareholder meetings. There may be some basic filing requirements, but creating an LLC is a straightforward process that is much simpler than creating a corporation.

How to Form an LLC

When forming an LLC, you can do it yourself or hire a business attorney to handle it for you. Either way, the process remains the same.

• Choose a company name. This name must not be in use within your state, or you will need to select another one. Your state will provide a convenient search tool you can use to check for new monikers for your company.
• Appoint a registered agent. This is the party responsible for receiving legal documents and notices on behalf of the company. Most states allow members to serve as their own registered agents as long as they are residents of the state with a physical business address.
• File the articles of organization with the state. This document is also known as a certificate of organization or certificate of formation. It includes a brief overview of your business details and can vary based on state requirements.
• Create an LLC operating agreement. An operating agreement outlines the company’s business structure and terms of operation. It also establishes the rights, duties and responsibilities of each member of your LLC.
• File for business licenses. These look different in each state, but you can find more details from your state and local governments. Certain industries may require additional licenses.
• Pay your fees. A fee will be required to register your LLC. The amount varies by state.
• Open a business account. Sign up for a new business account with a bank that has experience working with LLCs.

After formation is complete, all registered LLCs receive an IRS employer identification number (EIN) from the IRS.

How to Choose the Best State to Form an LLC

When determining the best states to form an LLC, these are some key considerations to help save you time and money down the road.

Liability Protection

The best part about an LLC is the protection it provides for a member’s personal assets. However, the exact protections can change by state, with some states offering more legal security than others. Be sure to consult a business attorney or independently review the terms for your state so you can be sure that you will receive the best protection for your business.

Taxes

Some states offer greater tax benefits than high-tax states like California and Vermont. However, these tax advantages can be based not on where your business was formed but rather, on where you make sales. This means you could miss out on some vital tax breaks if you do the bulk of your business in another state.

Fees

When you are starting a new business, every penny counts. Each state is different with the LLC fees it assesses, with states like Arizona and New Mexico ranking as more affordable than other states like Massachusetts. In addition to filing fees, there may also be costs for your EIN and a registered agent fee.

Privacy

Some states, like Delaware, Nevada and Wyoming, are known as anonymous LLC states, which means that you can create an LLC without disclosing personal information about the company members on state filings. This prevents the identity of members from being disclosed to the general public.