Many people starting a business wonder, “What’s the best state to file an LLC?”
LLCs are a common business entity that works for different types of companies.
And because so many people are transitioning to self-employment and solo ventures, it makes sense that many people are wondering which state they should start theirs.
Here’s a definitive answer, as well as more information on what an LLC is for business.
What Is An LLC?
The term LLC stands for a limited liability corporation. It’s a type of legal entity that entrepreneurs and CEOs use to structure their business.
LLCs only require one member to be started. Even as a sole proprietor of your business, there are benefits to organizing your work under this type of legal structure instead of declaring your business income under your social security number.
One of the major advantages of forming a limited liability corporation is that it protects your personal assets. If something happens to your business, only assets listed under the LLC’s name can be seized in the event you are sued.
Items listed under your personal social security number (like your car or home) are protected because they are not listed under your LLC.
Starting an LLC
In most states, forming a limited liability corporation is actually pretty easy. Some states are more difficult than others, but mostly it requires some simple paperwork filing and a small fee.
Often, you can register your small business right through the Secretary of State’s office in your chosen state.
Due to the soaring popularity of small businesses and entrepreneurship, some companies and agents specialize in this type of work and you can get advantages of a business bank account for your LLC.
Search for a “registered agent near me” to find someone local. LLCs have become so popular in large part due to how easy they are to form.
What Is The Best State to File an LLC?
There are several states that offer great advantages for forming an LLC. But Wyoming is probably the best state, followed closely by Delaware.
Now, perhaps there’s a chance you’re thinking, “I don’t want to be starting a business in Wyoming—I want to start it in my home state!”
But you can form an LLC in another state and run your business. The reason you might register an out-of-state LLC is to gain the advantages other state offers while still doing your work from someplace else.
Certain states don’t allow out-of-state registration or may make it difficult for you. But states like Wyoming, Delaware, and even Nevada all allow it.
Benefits of Wyoming LLC
Starting an LLC in Wyoming is not a bad idea regardless of the type of business you run.
For starters, the buy-in is about as easy as it gets. For $100 and some paperwork, you can register your limited liability corporation and get your business rolling.
Wyoming also offers very good asset protection laws. In some states, it could be easier for a person to go after your personal assets in a lawsuit. But that isn’t the case in Wyoming.
Most importantly, Wyoming doesn’t have a state income tax on LLCs. This will save you money and time during tax season.
In some states, the tax rates for limited liability corporations can be expensive. New Jersey and California are both notoriously high (between 9 and 13.3 percent) for LLCs.
Benefits of Delaware LLC
Forming a Delaware LLC can also be very advantageous. In fact, it’s probably the better option if you have a proven business model and plan to make over $500,000 per year in your LLC. Certain things about their LLC model actually benefit big businesses.
The fee to register your LLC is similar. It costs $90 to get started. But the fees you’ll pay to keep your business going could be much less.
In Wyoming, businesses are required to pay a fee when they file their annual report. The fee owed is contingent on how much the business made last year, meaning it could be pretty high if you made six figures or more.
In Delaware, the tax filing fee caps at $250. Depending on your net profit, this could be an advantage or an actual expense.
Either way, considering your needs is key when deciding the best state to file an LLC for you.
Other States to File an LLC
It’s no coincidence that some lesser populated states top the list for registering an LLC. Governments do their best to attract out-of-state entrepreneurs to come here based on the perks of doing business.
States like Alaska, Nevada, Oregon, Florida, and New Hampshire are all popular places to start a limited liability corporation as well.
Similar to Wyoming and Delaware, all these states make it relatively easy to file. You also won’t get tacked down with fees or expenses that make the cost of doing business undesirable.
Compare that to some states, like New York, which has a high corporate tax rate, individual income tax rate, high sales tax rate, and high property tax rates.
Or compare it to a state like Massachusetts, which costs about $500 per year to maintain.
Which State Is Right for You?
Determining the best state to file an LLC is contingent on your business needs and ambitions.
States like Wyoming and Delaware are fantastic options for almost all cases, but the one you’ll choose should come down to your individual needs.
In any case, do extensive research before forming your LLC. In some states, it costs money to change to another state. And as you may be able to guess, that price can vary a lot.
For more business information and tips, check out the rest of our blog!