Does It Matter What State My LLC Is In?

Forming an LLC can be complex from the start as you decide where to establish and register it. “Does it matter what state my LLC is in?” is a question often asked by entrepreneurs. The short answer is: Yes!. 

We’ll explore the long answer to this question in the article below.

How Does LLC Formation Differ by State?

Each state has its own requirements for LLC formations. These regulations may include paying extra fees, filling out forms, or completing other requirements.

For example, in Nevada, there’s an extra fee for registering as a foreign LLC, or an LLC formed in a state outside of where it conducts business. California requires foreign businesses to enter into constructive transactions in the state and register as foreign LLCs with the government. That registration also requires a Certificate of Good Standing.

If you don’t meet the requirements in the state where you form an LLC, you may face consequences. At a minimum, you’ll have to pay fees, and at worst, you could face the dissolution of your LLC.

Can I Live in a Different State Than My LLC?

When wondering whether it matters where to form an LLC, business owners often ask whether they can live in a different state. The answer is yes; you can legally live in a different state than where you formed your LLC. 

However, whether you want to is a different story. For some businesses, having an LLC outside their home state can be very beneficial, but for others, it could be the move that causes the business to close. 

Forming an LLC in Your Home State vs. an Outside State

When you form an LLC in your home state, it’s called a domestic LLC. Forming an LLC outside of your home state creates a foreign LLC. Both types of LLCs have unique advantages and disadvantages. 

Forming an LLC in Your Home State

Creating a domestic LLC is simpler than doing it in a different state. All you need to do is follow these instructions (in a simplified form):

Choose an available business name

Choose a registered agent

File an Articles of Organization with the state

Pay the required filing fees

Create an LLC operating agreement

Secure an IRS Employer Identification Number (EIN)

Forming an LLC Outside Your Home State

Forming a foreign LLC is similar to creating one in your home state, but the process requires additional steps. Once your LLC is formed, you will file a Foreign LLC Registration in the state(s) where your business is registered. 

You’ll also have to complete the “foreign qualification” process, provide final annual reports, and obtain additional licenses required by each state where you register your LLC.

Considerations for Which State You Should Create Your LLC In

These considerations provide a basic overview of what to think about when forming an LLC in a specific state. You should seek a legal professional’s advice specific to your business. 

Privacy

While an LLC is meant to separate personal and professional assets, choosing this business formation doesn’t necessarily mean your information is private. While some states will allow anonymity, meaning your information isn’t on public filings, others won't. Registering your LLC in a state that doesn’t permit anonymity may put your information out there, preventing you from maintaining privacy.

Asset Protection

Asset protection doesn’t have the same meaning in every state. While all LLCs separate personal and professional assets, the extent of that separation varies from state to state. For example, in some states, creditors can take personal assets to pay debts; in others, personal assets are completely off-limits. 

Taxes

Some states are known as tax havens with low tax rates and reciprocity agreements. Reciprocity agreements exist between different states, allowing people to pay taxes where they live instead of work to prevent double taxation. Double taxation occurs when a business owner pays taxes on the same income multiple times—once in their home state and again in the state(s) where they conduct business.

But other states impose multiple types of taxes on foreign LLCs, including:

Business income tax

Foreign entity tax

Franchise tax

State income tax

Foreign Qualification

Every state’s foreign qualification process differs; some take more effort than others. As mentioned, a Certificate of Good Standing is necessary, stating that your business is compliant and will remain so. Some states also require a Certificate of Authority and other unique documents or regulations. 

Laws and Regulations

Before forming an LLC in another state, you must understand the laws and regulations that apply to running a business there. If you make one mistake, it can lead to the dissolution of your LLC.

Best States to Start an LLC

After reading all this, you might wonder what the best state is for LLCs. While the answer depends on your business—another reason to consult a legal professional—here’s a general overview of the best states to start LLCs.

Your Home State

Many experts feel it’s best to file an LLC in your home state because of the many factors outlined in this article. Your home state is the best state to form an LLC for an online business, especially if you expand quickly. Expanding an online company is easier in your home state than in an outside state.

Delaware

Many people choose to form their LLC in Delaware because of its business-friendly laws and legal framework. The state is also well known for the Court of Chancery, which handles all things equity, and the speed of handling cases. Delaware also has no state corporate or personal income tax requirements for non-residents. 

Nevada

Nevada is known as a tax haven for LLCs because of its low overall taxes. This state also doesn’t impose state corporate income tax or franchise tax. Strong asset and privacy protections for anyone involved in the LLC further make it more appealing to business owners.

The state also has business-friendly laws and fewer record-keeping requirements and operating agreements. Nevada also has no requirement for annual meetings.  

Wyoming

This state is considered LLC-friendly with no state corporate income tax, taxes on corporate shares, or franchise tax. It also offers increased privacy for company shareholders. It’s worth noting that Wyoming seems to work better for larger corporations than smaller ones, so if you’re a start-up, the Cowboy State may not be the place for you. 

Davinci’s Incorporation Services

Now that you understand that it does matter what state your LLC is in, you may consider how to elevate your business using this business formation. Davinci can help—we offer incorporation services, including assisting with formation paperwork and designating your registered agent. Learn more about our incorporation services today!

Depending on where you choose to register your business, you may also need an address in that location. We offer virtual addresses for business owners in thousands of locations across the US.

About Coco Quillen

Coco is the Chief Operating Officer at Davinci Virtual Office Solutions. She manages the strategic development and operational implementation of services for Davinci. She works closely with all teams to ensure customers are well taken care of.