LLC

When forming a limited liability company (LLC) in the United States, you have 50 states to choose from. How do you decide which one is best? Should you choose your home state? Or, should you choose a popular jurisdiction for entity formation such as Delaware, Nevada, or Wyoming?

The limited liability company (LLC) is the go-to choice of entity for many entrepreneurs, large corporations, and even business lawyers. If you search online, you will find no shortage of articles touting the reasons why the LLC is the “best” choice when starting a company, and the “legal service provider” websites provide plenty of fee-based and do-it-yourself options for forming an LLC online.

However, while forming an LLC may be a smart choice in many situations, there are several reasons to consider other entity structures as well. Having a plan to seek outside investment is just one example. But, for the time being, let’s assume that you have considered your options and settled on forming an LLC. Now the question becomes: Where should you form your company?

Why Consider Different States When Forming an LLC?

First, let’s address the issue of why you should even be asking the question of where to form your LLC. The answer is simple: In the United States, LLCs (as well as corporations, limited partnerships, and other legal entities) are creatures of state law. When you form an LLC, you form it under the laws of a particular state – not the federal laws of the US. Each state’s LLC law is unique, and other relevant laws – including those regarding liability, privacy, and taxes – vary from state to state, as well.

No matter where you live or your company will operate, you can form an LLC in any state in the country. In other words, you have the opportunity to “forum shop” and choose the governing legal structure that provides the best package of benefits for your unique business and personal circumstances. It may be that forming an LLC in your home state is the best option. Or, if you live in a state like California or Colorado, filing in your home state may be an option to avoid. Then, there are the vast majority of circumstances that fall in the middle – where making an informed decision requires a careful assessment of the varying options available across the land.

Popular LLC Filing Jurisdictions: Delaware, Nevada, and Wyoming

Fortunately, limited liability companies have been around since the late 1970s (Wyoming enacted the United States’ first LLC law in 1977), and today much of the research has already been done for you. If forming an LLC in your home state is not your best option (more on this below), then you will likely be looking at forming your company in either Delaware, Nevada, or Wyoming.

Why form Your LLC in Delaware?

Delaware holds a reputation as one of the most favorable states in which to form an LLC, and there are several reasons why. Some of the benefits of forming an LLC in Delaware include:

  • Substantive Law – Delaware’s laws are generally viewed as being favorable to LLCs and other legal entities. Delaware also has a special court assigned to hear business cases, with expedited case schedules and judges who focus exclusively on business-related matters.
  • Taxes and Fees – Delaware does not have a tax on corporate shares and it does not require a business license for non-resident LLCs. There also is no personal income tax for non-residents of Delaware.
  • Privacy – In Delaware, the names of the company’s officers and members do not need to be filed with the Division of Corporations.
  • Flexibility – Delaware’s LLC formation laws provide significant flexibility for the company’s founders to structure ownership and control rights among members and managers.

Why form Your LLC in Nevada?

Like Delaware, Nevada has enacted laws designed to make it attractive for non-residents to form their LLCs in the state. Here are some of the primary benefits of forming an LLC in Nevada:

  • Taxes and Fees – Nevada does not have a tax on corporate shares or corporate income, nor does it have an annual franchise tax. However, a business license is required.
  • Indemnification – In Nevada, an LLC’s officers, directors, employees, and agents are indemnified by statute.
  • Privacy – While the Nevada Secretary of State’s office collects the names of LLCs’ initial owners and officers, Nevada is the only state in the country that does not have an information sharing agreement with the IRS. Note, however, that the IRS may still be able to identify the company’s owners and officers through other means.
  • Flexibility – Like Delaware, Nevada’s LLC law provides significant flexibility with regard to structuring ownership and control of domestic limited liability companies.

Why form Your LLC in Wyoming?

The first state to officially recognize the LLC structure, Wyoming also has one of the most favorable bodies of law governing LLCs in the United States. Some of the key benefits of forming a Wyoming LLC include:

  • Taxes and Fees – Wyoming does not have a tax on corporate shares or corporate income. It also does not have a franchise tax or require a business license, and the state’s annual filing fees for LLCs are minimal.
  • Indemnification – In Wyoming, an LLC’s officers, directors, employees, and agents are indemnified by statute.
  • Privacy – In Wyoming, LLC owners’ and officers’ names do not need to be reported to the state.
  • Flexibility – Like Delaware and Nevada, Wyoming provides significant flexibility for structuring LLCs.

Along with these benefits, Delaware, Nevada, and Wyoming LLCs offer the same benefits available under most other states’ laws as well. These include: (i) liability protection for owners; (ii) limited initial filing requirements; and (iii) no requirement to have a physical presence in the state, although you may need to appoint a local Resident Agent (there are companies that provide Resident Agent services for minimal fees).

Benefits of Forming an LLC in Your Home State

Despite the benefits listed above, in some instances it may make the most sense to form your LLC in your home state. The reasons largely have to do with cost and practicality.

For example, while the initial filing fees and annual costs of maintaining an LLC in Delaware, Nevada, and Wyoming may be lower, when you form your LLC out of state, you will need to register it as a “foreign entity” in the state where you do business. This requires another initial filing fee, and in many states additional ongoing filing fees as well. While the paperwork for maintaining foreign-entity registration is usually minimal, it is additional paperwork nonetheless, and if you are uncomfortable with the forms (or are administratively challenged) you may need to hire a lawyer or accountant to help you.

Likewise, when it comes time to pay taxes, owning a foreign entity adds an additional layer of complexity – even if you don’t owe taxes in the state where you formed your LLC. If your company gets sued, you could also face going to court in your LLC’s state of formation.

Questions about Forming an LLC? Contact Jiah Kim & Associates

If you are starting a business and would like help choosing the best jurisdiction to form your LLC, we encourage you to contact us for a confidential consultation. To schedule an appointment at Jiah Kim & Associates, call (646) 389-5065 or inquire online today.

This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Subscribe to our newsletter to receive more helpful tips about how to pass on your properties and legacy to the next generation

Jiah Kim & Associates

1562 First Ave #205-2004

New York, NY 10028

This website intends to use cookies to improve the site and your experience. By continuing to browse the site, you agree to accept our use of cookies. If you require further information and do not wish to have cookies placed when using the site, contact us at info@jiahkimlaw.com. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.

Close