You are permitted to form an LLC in any U.S. state regardless of where you reside or where you intend to do business. Though some states offer more advantages to LLC owners, there are two peculiarities to creating an LLC in other states: you must register as a foreign LLC in each state you intend to conduct business, and you must designate a registered agent in the state in which you started your LLC.
In this article, we will explore which US states are the most business-friendly and offer the best opportunities for launching a private venture. Keep on reading to find out which will be the best state to file an LLC for you.
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While the formation formalities and overall process are pretty much the same across the country, there are a number of factors and nuances that differ. And it’s those secondary details that greatly impact the post-formation process and your future LLC management, control, and maintenance.
Thus, the main aspects to consider when choosing the best state to open an LLC are not only the start-up procedure to follow and registration fees to pay but also:
Besides, some regions are better places for certain types of activities and businesses than others.
We’ve already picked the 10 best states to incorporate an LLC. When making this list, we’ve taken into account different factors and checked how those factors are realized in various states.
Once Delaware used to be the best state to form LLC, yet, recently, it has been pushed out from the top position by Wyoming. What gives Wyoming an edge over the rest of the US states is its taxation system, which is extremely favorable to business.
Thus, Wyoming has 0% individual and corporate tax rates. Along with a lower sales tax rate (at 4% only), this taxation system is welcoming for startuppers and beginner businessmen of all types. Add to this a reasonably rated LLC registration fee of $100 and a moderate annual reporting fee of $60 that won’t hit the business budgets too much and are meant to maintain business development.
Something else you can’t but like about this state is a “lifetime proxy” right. You are entitled to keep your name confidential when filing an LLC by appointing a third party that will represent your share in the company on a lifetime basis.
The biggest advantage to forming a Delaware LLC is Delaware’s Chancery Court. This is a special court in the state responsible for adjudicating business matters. This means that your cases will be heard more quickly and that you will appear before a judge with a lot of experience in business law.
Delaware has a reputation as being the go-to state for incorporation and LLC creation. In fact, Delaware has more companies than people. This reputation is a result of Delaware’s commitment to the business. The State Division of Corporations is responsive and friendly to business owners and charges some of the lowest fees in the country for its services.
If anonymity is important to you, Delaware permits private filings in which the LLC’s members do not need to disclose their identities. Delaware’s LLC laws are also some of the fairest and most flexible in the nation, especially with regard to the freedom of contract. Almost any provision you place in your Operating Agreement will be upheld by Delaware courts.
Nevada is quickly establishing itself as a haven for LLCs as well. In addition to affording business owners a similar level of privacy as offered in Delaware — insofar as members need not disclose their identities — Nevada also charges very low annual fees to its LLCs. The tax advantages in Nevada — mostly due to influence from Las Vegas — meaning you won’t pay business income tax, capital gains tax, state corporation tax, inheritance tax, or franchise fees.
The tax advantage is not particularly pronounced in pass-through LLCs, including single-member LLCs and LLCs that elect to be taxed as partnerships. The reason is that as a pass-through tax entity, the LLC’s members claim the LLC income directly on their own personal tax returns. As a result, you will pay income tax to your state of residence regardless of the LLC’s location. LLCs that elect to be taxed as corporations can reap these tax advantages, however.
Many of you might be surprised to see Alaska on our list. Yet, the truth is that being the largest US state with by far the harshest climate, Alaska is also presumably the best to establish an LLC for new entrepreneurs.
To make the state attractive for businessmen, Alaska has inexpensive formation and maintenance costs. To further cut down your business starting and operating expenses, the state keeps income and sales taxes at bay.
To promote development in industrial and public areas, the state comes up with unique financial opportunities for business. It offers access to tax credits and beneficial loan programs for certain industries and types of activity.
To inspire new business projects that will further contribute to the infrastructure and social environment, Alaska has quite a few incentives. Noteworthy, though, most of them are aimed at keeping entrepreneurs physically present in the state.
Free from state income taxes and featuring a 0% corporate tax rate, South Dakota is the best state to create an LLC that is going to be taxed as a corporation or launch a corporation from scratch. As such, South Dakota encourages bigger businesses, as well as companies targetting growth through third-party investments. In other words, if you have ambitious growth strategies for your venture, South Dakota will be the right place to start.
Other appealing features of the South Dakota business environment are zero property, inheritance, and business inventory taxes. Property taxes are normally levied irrespective of whether the business makes a profit or not. Exemption from these charges is a great opportunity to save some funds and further contribute them to the business.
With Fisher Island and Miami Beach so much loved by celebs and the wealthy, Florida is considered one of the most expensive US states. And only a few know that this land of sunshine and leisure is among the best places to form an LLC.
The pro-business climate in Florida is maintained by a lower tax burden and smartly structured business taxation system. Though the state does have corporate and sales taxes in place, the rates look more than reasonable and won’t hit even the beginner budgets. Flexible taxes are further supported by the competitive business formation and running costs and well-thought state and local regulations.
All of the above works to establish the most welcoming legal and commercial environment for all types of businesses, including smaller companies and corporations.
Montana was on the top of the “Best State to Start an LLC” ranking in 2021, and for a good reason. A five-year entity survival rate for small businesses here is nearly 55%, which is really high. This fact alone proves that Montana is a nice place for first-time entrepreneurs to set up a private business.
If you look into the Montana tax climate, you might say it’s nothing special. Most taxes are in line with the market average rates and, overall, it could be more business-friendly. However, one thing that does make Montana stand out is a 0% sales tax that provides good opportunities for commercial activities.
If you look at statistical data, you’ll see that nearly 99% of companies registered in New Hampshire are small businesses. So, it’s no wonder we have this state on our list. There are three major aspects that make New Hampshire a welcoming place for business start-ups. It’s a lower tax burden, accessible government support, and efficient infrastructure.
Levying no individual income taxes and sales taxes, the Granite State allows earning and spending money in a cost-effective manner. In fact, NH is distinguished by an optimal tax climate for businesses and residents alike.
Meanwhile, the state community provides every bit of support to startuppers and beginner businessmen to help them set up and grow their ventures with ease. You’ll have no problem contacting state authorities and can even get a free business consultation if necessary.
Finally, the New Hampshire location in the center of New England and the Canadian border further expands your business opportunities enabling you to work locally and abroad and ensuring smooth logistics with multiple other states.
While not taking the top positions, Utah has been enlisted in the “Best State to Form an LLC” rating for years. Combining high economic performance with a healthy regulatory climate and welcoming fiscal system, Utah scores well in many areas.
With corporate, sales, property, and individual tax rates consistently hitting the midground, Utah offers stability that will let you work out long-term business plans and strategies relying on permanent expense rates.
Along with a business-friendly legislature, Utah also has a diverse economy. Multiple business opportunities are another claim to fame. With mining and farming at the core, Utah feeds growth in aerospace and defense, IT, life sciences, the energy sector, and financial services.
Home to such world-known brands as Nike, Columbia, and Adidas and to over 300,000 small enterprises, Oregon is a pro-business state. It creates investment and tax incentives to attract businesses and make them want to settle here.
Thus, companies offering full-time jobs in the localities they operate can expect to deduct or even eliminate their income taxes. Besides, when signing government contracts, preference is given to smaller businesses.
Speaking of taxation, Oregon has a zero sales tax which makes it one of the most beneficial states for retailers and commercial companies. On top of that, the state allows bringing forward corporate operating losses for a 15-year period so that companies could optimize their tax liabilities and contribute the saved funds back to business.
Tax perks are further enhanced by lower operating costs and growing access to venture capital.
The truth for most small LLC owners is that the state in which you personally reside is probably the best home for your LLC. Unless you plan to operate in multiple states or grow to become a public company, you will probably save more money and time by forming in your own state. Additionally, you will avoid the initial added steps of finding a resident to act as your agent and registering as a foreign LLC.
Despite Wyoming and Delaware being regularly touted as the “best states to open an LLC,” they should not be the default choices for all business owners. Do not choose your state of formation based on what you have been told is better. Unless you have a specific, strong reason for registering out of state, your home state is probably your best bet.
When thinking about the best state to register LLC, don’t be driven only by compliance requirements, fiscal regulations, and operating fees. Always keep in mind what you are going to do since some regions are more favorable for certain types of activities while others offer better opportunities in other industries.
An online business format has been recently on the rise. More and more companies start as online ventures or shift their business to a virtual place. The biggest advantage of Internet companies over brick-and-mortar ones is that they can be registered in any state.
If you also have plans about incorporating an LLC for your future online enterprise and wonder which state will best suit your needs, there are a few key factors to consider. These are valid tax rates, accessible financial resources, and efficient technological infrastructure to ensure smooth business operation.
The state that ticks all the boxes on the list of factors to consider is Utah. Once rather an industrial area, recently, Utah has become home to many tech-driven businesses. Welcoming tax climate combined with smart state regulations reduces the overall governmental burden on the business and encourages entrepreneurship.
A few other states hold the cards in certain factors. Thus, Wyoming has the most favorable tax climate, and South Dakota minimizes tricky state regulations making it a perfect place for online startups seeking to avoid regulatory headaches to the max. Those who seek reliable investors should turn their eyes to California, which abounds in venture capital. And New York boasts by far the best technological infrastructure for ambitious projects.
Investing in real estate brings profit, yet, it’s a complicated and sensitive area as well. Similar to many other types of activity, property-related businesses highly depend on state laws and regulations. So, before diving into this industry, you should:
Cutting to the chase, there are a few states we consider the best to launch your business in the sphere of real estate. Though a bit unexpected, yet, Wyoming takes the leading position. With filing and reporting costs on the lower side, the state has no income tax and shows dynamic growth in the real estate market, both commercial and residential.
Montana, Nevada, and South Dakota are also worth your attention. All of them are welcoming for LLCs and have mild and business-friendly fiscal conditions to make it an easy start for you.
Besides, it’s worth noting that a series LLC is arguably the best structure for making real estate investments. And all of the above states allow forming of this type of entity.
Delaware is a confident winner in this category because it provides:
For the sake of truth, it should be noted that Wyoming is a decent alternative too. With no personal and income taxes in place and the priority of anonymity, this state is certainly a safe place to launch a consulting firm.
Those who look for solid financial support can’t go wrong with Alaska. Generous tax credits and diverse state loan programs are a great helping hand for long-term business growth.
It’s no secret that LLC formation and registration formalities entangle certain costs. Thus, there is a compulsory one-time filing fee that an organizer should pay to the state office to register a business entity.
Those filing fees vary by state and the gap is quite big. So, the cost of formation can fall anywhere from $40 to $500.
You’ll find the lowest formation rates in:
You’ll pay no more than $50 there for the LLC setup. Meanwhile, Texas and Connecticut are the most expensive in this concern.
Another obligatory payment you’ll have to make on a regular basis is an annual report fee. All states have reporting requirements except Alabama and Ohio. Reporting fees also widely vary across the country. The cheapest states here are New York and California which will levy only $9 and $21 accordingly. Delaware, Wyoming, Nevada, and South Dakota are also at the lower end of the price range, with $50 reporting fees.
With filing rules and formation requirements being very similar throughout the country, some states are better places for business than others. Yet, there is no guarantee your venture will succeed in a better business environment. Meanwhile, you might end up maintaining LLCs in both a foreign and your home state and have even more pain in the neck.
If you already reside in one of the best states to form an LLC, you are lucky. However, if you don’t, you shouldn’t immediately consider moving to another place only to start a business there. When making your decision to open an LLC in a foreign state, it’s recommended that you weigh all the pros and cons of that strategy first.
