Deal alert! Northwest, our favorite company, is forming
LLCs for $39 (60% off!) See details.
Summary: It’s best to form your LLC in your home state because that is where your LLC will conduct business. Even running an online business means you still conduct business in your home state. Forming an LLC in Delaware, Nevada, or Wyoming usually ends up costing a lot more. More headaches, too.
There are 4 exceptions to this rule:
- California Residents
- Non-US Residents
- Real Estate Investors
- California Residents
- Non-US Residents
- Real Estate Investors
- Wyoming Holding Company
We see this all over the internet:
“Nevada has no corporate income tax.”
“Wyoming LLCs are the most affordable.”
“Delaware is the best state to start an LLC!”
To be completely honest with you, it’s mostly B.S. and doesn’t apply to the vast majority of LLC owners.
The disadvantages of forming an LLC outside of your home state far outweigh the perceived “advantages”.
Let us explain.
Domestic LLC vs. Foreign LLC
If you form an LLC in the state where you reside (aka your “home state”), this is known as a Domestic LLC.
If you form an LLC outside of your home state, you’ll be required to register that out-of-state LLC as a Foreign LLC in your home state.
- Related article: Difference Between a Domestic LLC and a Foreign LLC
For example, if you form an LLC in Nevada (but you don’t live there), then you’ll be required to register that Nevada LLC in your home state (as a Foreign LLC) in order to do business in your home state.
- You now have 2 LLC filings (one in Nevada and one in your home state).
- You have to pay 2 State filing fees.
- You will be required to pay for a Registered Agent in order to use their address for your Nevada LLC.
- You have to pay 2 Annual Report fees.
Note: We used Nevada above as an example, but the same applies to any out-of-state LLC.
In short, this can easily add up to DOUBLE the cost and DOUBLE the headaches since you have to maintain 2 LLC filings.
Need to save time? Hire a company to form your LLC:
Northwest ($39 + state fee) or LegalZoom ($149 + state fee)
(check out Northwest vs LegalZoom)
States Charge Fines and Penalties
All state governments enforce their rules that require an LLC to be registered as a Foreign LLC if it is transacting business in their state. Enforcement can include fines, penalties, interest, court costs, and having the LLC’s ability to transact business completely put on hold.
Some states have higher fines than others, but all states have statutes which spell out the consequences of an LLC illegally transacting business in their state.
In some states, the fines can be a few hundred dollars per year. In other states, the fines can be thousands of dollars per year.
Take for example the Connecticut Secretary of State. In conjunction with the Attorney General, they collected $1.3 million from companies that were illegally doing business in Connecticut (not registered as foreign entities). Some companies were only fined a few hundred dollars, however most companies were charged a lot more. The average fine was $4,600 and the highest fine was $30,795.
As per Section 34-275a of the Connecticut LLC Act, if your out-of-state LLC conducts business in Connecticut but fails to register as a foreign LLC within 90 days:
- The state imposes a $300 per month penalty.
- Your out-of-state LLC owes income taxes and fees for all the years (and partial years) it failed to register. And the individual who owns the LLC must pay income taxes for the LLC on their state income tax form.
- Your out-of-state LLC is also charged interest and penalties for not paying the taxes and fees it should have paid.
- The penalties are levied by the Secretary of State, but if necessary, the Attorney General will sue your out-of-state LLC to recover all the amounts due.
- The Attorney General can also issue an injunction preventing your out-of-state LLC from doing any more business.
- While your out-of-state LLC can defend itself in a lawsuit, it cannot sue another party in Connecticut.
- Your out-of-state LLC won’t be able transact business in Connecticut until all civil penalties are paid (including interest and court costs) and the LLC properly registers as a foreign LLC.
If you want to form your LLC in one state and then register that LLC as a foreign LLC in the state(s) where it’s transacting business, then this whole thing may not be a big deal.
However, a lot of small business owners don’t want to pay for an LLC filing in multiple states since it requires multiple filing fees, multiple annual report fees (and potentially other annual requirements), in addition to maintaining a Registered Agent in multiple states.
Taxes Are Paid Where Money Is Made
Many people are misled into forming an LLC in other states to take advantage of “savings on state income taxes”.
This is simply not true.
In this example, if you formed a Nevada LLC and that LLC is doing business in your home state (not in Nevada), you’ll still need to pay taxes in your home state because that is where you are making money.
A helpful saying to remember is:
“Taxes are paid where money is made.”
Again, your Foreign LLC will need to pay taxes in your home state since that is where you are operating and doing business.
Even worse, you may owe additional taxes and fees in Nevada.
So why do so many websites talk about Nevada LLCs?
Again, most of the benefits of forming an LLC outside your “home state” are a far stretch from the truth.
Both the states and the companies promoting those states stand to gain financially by LLCs being created within THAT state’s borders.
For example, if 40,000 LLCs are formed each year in Nevada, that’s approximately $3 million dollars in annual revenue for the state.
And that is just for the state of Nevada alone.
It doesn’t include the tens of millions of dollars made by the companies promoting Nevada as “the place” to form your LLC.
The funny thing is, compared to how much Nevada is “hyped up”, there really aren’t that many LLCs formed there each year.
There are far more LLCs formed in states that aren’t “hyped-up”.
Furthermore, Nevada companies rank the highest in fraudulent activity.
Look – don’t get us wrong, if you live in Nevada and you form an LLC in Nevada, there is nothing wrong with that.
But if you don’t live in Nevada, again, it is much better to form your LLC in your home state.
So what about a Wyoming LLC?
Although there is far less fraudulent activity in Wyoming compared to Nevada, this state is also hyped up.
Again, the disadvantages of forming an LLC outside of your home state far outweigh the perceived “advantages” and are not worth the extra hassle, time, and money.
In fact, it will cost you a lot more in the long run.
Forming your LLC where you live is your best bet.
Before we discuss forming an LLC in your home state, let’s talk about the first state to ratify the United States Constitution.
Although small in a geographical sense, Delaware is quite large in terms of business activity.
Over 50% of U.S. publicly traded corporations and 60% of the Fortune 500 companies are incorporated in Delaware.
But, did you see the two words we underlined above?
“Corporations” and “incorporated“.
You’ll notice these statistics say nothing about LLCs.
The fact is that Delaware may be a good state to form a company in – if your business operates as a Corporation.
Meaning, Delaware is best suited for publicly traded companies that sell shares on the stock market (like Microsoft, Apple, IBM, Chase, Coca-Cola), or companies that have multiple investors, or need to raise venture capital.
But, most of our readers don’t fall into that category.
If you form an LLC in Delaware (but don’t live there), you will still need to:
- Register your Delaware LLC as a Foreign LLC in your home state
- Pay annually for a Registered Agent, and
- Pay the Annual Reporting fees in both states every year
However, if you do live in Delaware (or your LLC in transacting business in Delaware), then you can form your LLC in Delaware.
Home State vs. “Magical States”
Again, forming your LLC outside of your home state is just not worth the hassle and cost.
This goes for Nevada, Wyoming, Delaware, and any other “magical” state.
Attorneys Alexander J. Davie & Dana Shultz agree: most of these states are just hyped up. The best state to form an LLC is your home state.
We get lots of questions like this: “My business is 100% online. Where should I form an LLC?”
The answer in this case is still an LLC in your home state. Do you think by just being “online” that you can get around corporate law and tax law? That’s not how it works.
Many people run their online business from their home (or coffee shops and co-working spaces in town). That’s where you’re legally doing business. And that’s where you should form your LLC. It’s not a matter of where your customers are located (if you sell online); it’s a matter of where you are primarily (or repeatedly) running the business from.
Even if you travel often or run a location-independent business, the states don’t really care. You’ll need to pick a state where you have the greatest “connection”. This is most likely your home state, your state of residency, where you have your driver’s license, and where you pay state taxes.
My Customers are all Over the Country/World
A lot of people are confused about the legal definition of “doing business”. They think it’s about where the customers are.
It’s not. It’s about where you are running and operating the business from.
You should form your LLC where you’re running the business and working from.
And just because you have customers or clients located in a few states doesn’t mean you need to register your LLC as a Foreign LLC in that state.
Issues with Seller’s Permits
Many LLC University® readers write to us about the issues they face after forming their LLC in the wrong state. We recently received this comment:
“I live in California. I got some bad advice and made the mistake of registering my LLC in Utah back in June. Then I realized that I also needed to register in California as a Foreign LLC since I need a sellers permit for wholesale purchases.“
If you need a Seller’s Permit (aka Reseller’s Permit or Resale Certificate), you’re likely going to run into similar issues.
What really stinks about this situation is how much time and money has already been invested. In our example above, this reader now has to 1) register his Utah LLC as a Foreign LLC in California, 2) dissolve his Utah LLC and form a California LLC, or 3) Re-domicile (also known as conversion or re-domestication) his Utah LLC to California… which isn’t the easiest process.
Then he has to sort out bank accounts, address updates, IRS updates, and all the other registrations that are in place with the Utah LLC.
You’re also likely to run into similar issues if you have to register your LLC with your state’s Department of Revenue (ex: sales tax registration), but your LLC is formed in another state.
Form an LLC in Your Home State
This is the least expensive, easiest to set up, and the best long-term strategy for your LLC.
The reason why is that most people are running their business (regardless of where they form their LLC) from their home state.
Our friends at Northwest Registered Agent say it best:
“We get a lot of people these days coming up with some pretty goofy ideas. We always try to send them in the right direction before they go off and set up their 5-LLC-asset-protection-strategy to protect their new taco stand idea.”
If you are primarily running your business from home or from locations in your home state, you are most likely transacting business in that state. And that’s the state where you should form your LLC (or register your out-of-state LLC as a foreign LLC).
Now yes, it’s possible to reside in North Carolina, for example, but have a factory and employees located in Virginia. In this situation, your LLC is most certainly transacting business in Virginia. However, it’s likely that your LLC is also transacting business in North Carolina if you are working from home to run your business activities in Virginia.
Another helpful way of determining your home state (if it’s not clear) is to imagine yourself in a state tax audit. Where would the court determine you are throughout most of the year? Where are most of your ties? For most people, this will most likely be the state where your LLC is also transacting business.
How would you answer the following questions:
- What state are you a resident of?
- Where do you pay rent?
- Where do you own homes?
- Where is your bank account?
- Where is your driver’s license?
- Where do you file a state tax return?
- If you have other licenses/permits, in what state are they held?
- Where are you registered to vote?
- What states were you in for more than 183 days?
- Where is your doctor?
- Where is your dentist?
- Where is your health insurance?
- Where do your kids go to school?
- Where is your church?
- Where does your family wait for you while you’re traveling?
- Where do you most frequently return to after traveling?
- Where is your main office?
- Where is your gym?
- Where is your country club, group, or regular local meetings?
- Where are your cars registered?
- In what state is your car insurance?
- Where are your pets?
- Where is your veterinarian?
- Where is your safe deposit box?
- Where do you receive most of your mail?
- Where are financial statements and bills sent?
- From where do your social media posts’ originate?
- Where are most of your toll records?
- Where do the calls/text on your cell phone originate? (records have been subpoenaed)
Now not all the things above mean an LLC is transacting business in that state. It’s more so for people who think they are just doing business online, or doing business from “anywhere”. If you were being audited for your personal income taxes, the state where the court determines that you’re a resident is most likely the same state where your LLC is transacting business.
We hope this information is helpful to you.
We hope it cleared up a lot of the hype and misinformation about which state is best to form your LLC.
Now, there are some exceptions.
There are four basic exceptions regarding which state is best to start an LLC:
If you live in California, you’ll likely be doing business in California no matter where you form your LLC. So you’ll need to form an LLC in California or register your out-of-state limited liability company as a foreign LLC.
Non-U.S. Citizens and non-U.S. Residents
Note: There are no citizenship or residency requirements to form an LLC in any US state. Non-US residents can form LLCs in the USA.
If you are a non-US citizen or a non-US resident, it comes down to how the business is run.
If you’re going to have an office, employees, or physical presence in the USA, then you should form your LLC in that state. This is the state where the LLC will be transacting business.
If your business will have no physical presence in the USA, then you can choose any state.
The type of US taxes and state taxes you pay will depend on how your business makes money. There isn’t a simple answer for what the “best state” is for the lowest taxes for non-US residents/citizens. It all comes down to the type of business you have. And this isn’t something we can answer for you. You’ll need to speak with an accountant familiar with non-resident alien taxation and the 60+ US tax treaties.
Having said that, while you can pick any state to form your LLC in (if there is no physical presence), how you obtain an EIN and open a bank account are different. And foreign-owned Single-Member LLCs have an additional filing requirement with the IRS (Form 5472). Related to all that, you’ll find these articles helpful:
- How to get an EIN for LLC without an SSN
- How a non-US resident can open an LLC bank account
- Form 5472 and foreign-owned Single-Member LLC
Real Estate Limited Liability Company
As we mentioned earlier, when operating a business, it’s best to form your LLC in your home state (since that is where most LLCs are transacting business).
This is not the case for real estate LLCs.
Of course, if you are investing in real estate in the state where you live, then yes, it makes sense to form your LLC in your home state.
But if you are investing in real estate located in another state, it is best to form your LLC there.
Your LLC is doing business in that state if you’re generating rental income, buying and selling, wholesaling, or basically any method where you’re making money from your real estate investments.
If you were to purchase property out of state with an LLC that was formed in your home state, you would run into the same issue that we mentioned earlier.
You will be required to register the Domestic LLC in your home state as a Foreign LLC in the state where you are purchasing the property.
Which means that you now have to pay filing fees in both states, pay for a Registered Agent in the foreign state, pay annual fees in both states, and deal with the headaches of unnecessarily managing 2 LLCs.
In summary, it is best to form your LLC in the state where you are buying property since that is the state where your LLC is transacting business.
Wyoming Holding Company
If you’re buying a lot of property – or property in multiple states –, some real estate investors will set up a Wyoming LLC holding company. And then that LLC will own other LLCs located in the states where the properties are located.
Said another way, real estate investors often form a parent LLC in Wyoming, then the Wyoming LLC owns a child LLC set up in the property state.
If you’re considering starting a holding company, you should speak with an attorney or accountant about this.
Best State to Start an LLC FAQs
Will an LLC save money on corporate income taxes?
No, forming an LLC won’t prevent you from having to pay corporate income taxes. This is because LLCs don’t have corporate income taxes at all.
Said another way, the term “LLC” stands for Limited Liability Company, not Limited Liability Corporation. So LLCs don’t have corporate income taxes to pay, because LLCs aren’t Corporations.
Instead, LLCs have what’s called “pass-through taxation”.
Pass-through taxation means that the tax-paying responsibility passes through the business structure (the LLC) to the business owner(s). The business owner(s) then pay taxes on any business income generated by the LLC on their individual income taxes (Form 1040).
Note: The only exception is for LLC owners who choose to have their LLC taxed as a C-Corporation. However, this is rare.
Which state is the cheapest to open an LLC?
The cheapest state to open an LLC is Montana.
That said, you should only open an LLC in Montana if you live in that state, or do business there.
While Montana may seem like a business friendly state due to their tax laws, those tax advantages only apply if you live there or do business there. Otherwise, you’ll have to register your LLC twice: once as a domestic LLC in Montana, and again as a foreign LLC where you live/do business.
That means you will also have to pay annual fees in both states. And you may have to pay for 2 Registered Agents.
The costs add up quickly and you end up spending more money on your business instead of saving money.
562 comments on “Best State to Form an LLC”
Disclaimer: Nothing on this page shall be interpreted as legal or tax advice. Rules and regulations vary by location. They also change over time and are specific to your situation. Furthermore, this comment section is provided so people can share their thoughts and experience. Please consult a licensed professional if you have legal or tax questions.
4 friends and I are at the point where we need to incorporate/form a partnership. We trade currencies with no outside investment or customers. We are all over the country; NY, Illinois, California, and Michigan. Would you suggest choosing the best Tax state from the list above or go with a foreign state in this case? Thanks in advance. Josh
Thanks for this article. It’s very helpful! However, I’m looking for some clarification. I have a teenage son with a YouTube channel and he has enough of a following to qualify for ad revenue. Since he’s a minor, I would need to set up an AdSense account under my name. However, rather than just do it as a sole proprietor, it seems prudent for me to set up an LLC for increased liability protection. We live in Massachusetts, where the cost for setting up an LLC is $500 and comes along with an annual report fee of $500 just for existing. Ideally, it would be preferable (i.e. much cheaper) to set up an LLC in another state, but only if I didn’t have to register as a foreign LLC in Massachusetts (which also costs $500 and then $500 annually).
I have researched what activities “do not constitute transacting business” in Massachusetts and it sounds like we could make a fair argument for being exempt from having to file as a foreign LLC since the only income for the LLC would be YouTube ad revenue. I’m curious if your experience indicates otherwise. Here is the link to the State of MA website: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter156D/Section15.01
Thanks for any light you can shed on this situation!
I organize conventions in different states and cities, mostly in the west coast, can i form an llc in New Mexico, and how would i be taxed?
Thank you for all this helpful information. I live in California and am starting an online business. Privacy is a big concern for me. So I was thinking about filing my LLC in New Mexico. Then, instead of filing my NM LLC as a foreign LLC in California, could I just create another LLC in California that is owned by the NM LLC, and the new CA LLC would be the main one doing business in CA?
I have a rental property (Airbnb) in Florida and I reside in Missouri. If I form my real estate LLC in Florida, will I still need to form a foreign LLC in Missouri? The rental income is generated in Florida, but I self manage the property from my state.
My sibling and I want to start an LLC Partnership to invest in real estate. Our investments will be in TX.. I’m a resident of TX and she is a resident of NM. Do we have to register the LLC in New Mexico and Texas?
What if I was just using a Montana or Wyoming LLC to hold the money from my domestic LLC in my home state? I wouldn’t be doing any business besides a UCC-1 to make my domestic LLC look in debt. It seems like that would be a good way to shield assets from potential lawsuits.
I have a driver’s license in Nevada ( I lived there for 7yrs) which I would like to keep, however I moved to Ohio recently to help a sick family member. I do not own any property or a vehicle. My business will be selling online courses ,etc with no physical location.
Where should form my new LLC?
If I run an online Web Hosting business, and reside outside the US and I don’t own any property in the United States, but used to live in the US. Would a Wyoming LLC be a good choice? Thank you in advance for your answer.
Hi Elvis, in that case, you can choose any state you’d like.
Thank you for your prompt response. I really appreciate it.
In that case, Wyoming would be the best? I also wanted to add, I lived in Arizona for 40 years and have a AZ Drivers license. Does your answer still apply to me? Thanks again!
You’re welcome Elvis. Wyoming is a good state and could certainly work. Even with your ties to Arizona, you wouldn’t have to form an LLC in Arizona (although you certainly could). Another state I like is the Ohio LLC. Filing fee is low, paperwork is easy, and there’s no Annual Report.
I will checkout Ohio as well. Thanks again for all your help.
You’re welcome Elvis :)
I live in 2 states, GA and FL, I dissolved a FL business I had and want rebrand and start over. My services are business services that can be offered online can use Ohio as well, or would I need to register in one of my home states? Would I need foreign registration as well?
Hi Matt – Thank you for the breakdown, I had a few additional questions about the real estate LLCs topic that I was hoping you could help with. I’m based in Maryland (corp tax rate of 8.25%) but I’m looking to start a Rental Arbitrage LLC for short term (AIRBNB) & mid-term rentals (traveling nurses) in either Florida (5.5%), Georgia (5.75%), Texas (1% above $1M), Louisiana(7.5%), or North Carolina (2.5%). Initially, I was going to register in Wyoming due to the internet hype about “tax savings”, but now I’m not sure if I should be doing it in Maryland or the one of the 5 states above that I’m planning to generate income in? Also, if I registered the LLC in Maryland I’d have to pay 8.25% AND the corp tax from the other state, too or jus the other state corp not Maryland tax? Or, if I registered the LLC in the other state (example: GA) and foreign LLC in Maryland I would only have to pay GA? What if I generated in two states GA & FL but still reside in Maryland, does that change how I need register or pay corporate taxes?
You’re welcome Tamika! And good news, LLCs don’t pay corporate taxes, so all those rates you mentioned aren’t applicable. LLCs have pass-through taxation. This means the profits “pass through” to you and you pay the taxes as a part of your 1040 tax return (paid at your tax bracket).
And you’ll pay Maryland state income tax as well is the same fashion (regardless of where you form your LLC). Maryland’s personal tax rates are between 2-6%. More info here: Comptroller of Maryland: Maryland Income Tax Rates and Brackets. If you generate income in multiple states, your accountant would file multiple state returns and apportion (divvy up) the income appropriately.
I am an LCSW living in NC and my sister is a LCSW living in NJ and we are looking to form an online virtual therapy group. How would we go about it, As NC has PLLC and NJ has LLC but does not allow PLLC. Can we form it as LLC in NJ and list NC as foreign agent? Or set up an LLC in NC and list my sister as foreign agent in NJ? Is there any way of getting this done? Thanks for your help. Great article.
Hi Karen, since we don’t do a ton of work with PLLCs, I’m not 100% sure on this. I recommend calling the NJ Division of Revenue (609-292-9292) and seeing if you can register a North Carolina PLLC as a foreign LLC in New Jersey. Also, you used the term “foreign agent”, which isn’t a thing. There are foreign LLCs, but no foreign Registered Agents.
Thanks for this kind of realistic content. I just want to get my head clear about which state to form this LLC.
(The scenario) My address and documents at the moment are in NYC address but I work in NJ; and 2022 will be my first year doing taxes with a 1099. So, thanks to this job I will found my first LLC, and I’ll be having office space/operate this LLC from NJ. And as you said “tax are paid where money is made” I assume the LLC will be paying in NJ.
1-Will be best for me to form this LLC in NJ or do it in NYC with the foreign registration in NJ?
2-If forming it in NJ; will I have to pay the anual filling in NY too?
3-If forming it in NY, in the future I’m planing to move to NJ, what will happens there?
PD: sorry if this is a lot and I appreciate your advice!
Hi Ray, you’ll want to form the LLC in one state and foreign qualify in the other. I’ll provide more details in my next reply. Do you see yourself living in NJ long term? And as far as taxes, you’ll likely file in both states and an accountant would apportion the appropriate amounts of income to each state.
Yes! The move is planed to be effective in 2-3 year when buying a propriety as a family residential.
Thanks Ray. I’d say in this case it actually doesn’t matter too much what state you pick as your “base” LLC. For example, you can form a New York LLC and register it as a foreign LLC in New Jersey, or form a Jersey LLC and register it as a foreign LLC in New York. Maybe there is a slight benefit to New Jersey as the base state. That’s because it’s easier to do the foreign LLC registration in New York (the paperwork is simpler). No matter which state you form your “base” LLC in, you’ll still need to meet all the filing requirements in both states. Hope that helps a bit.
Hi Matt! A less common scenario for you, I am a mountain guide with legal residence in Florida (with family) however I live nomadically and offer services in the Western USA, mostly Utah, but also California, Nevada, and Internationally. I spend roughly 2 weeks per year in Florida. Would you suggest forming an LLC in Florida or where I do most of my business (currently UT but often changing)? How does this look without a physical address in the state? Thank you so much!
Hi Kevin, in this case, I’d pick a “base” state to form my LLC. Then if I reside or do business in a state and need to register as a foreign LLC, I’d do that. And then cancel/withdraw that registration after I move. However, given the nature of how frequently you move, and the stability of your Florida address, you could just use a Florida LLC. If you don’t want to use family’s address, you can hire a Registered Agent Service (that applies to any state). Just thinking this might be easier than form an LLC in Utah, for example. Also, Utah’s online LLC formation process is more complicated and cumbersome. And I’d avoid California and Nevada. Hope that helps.
i hope your were doing good. I need help because I live in Pakistan. I want to create LLC for my online E commerce business. sir can you please tell me which state is best for me
Hi Muhammad, we don’t offer filing services at this time. Check out Doola. They specialize in working with non-US residents.
Hello! Since LLCs are usually pass through entities and do not pay state income taxes, with state income tax due at the personal level, is it best to file the tax return with an address in a state with no personal state income tax, such as Florida? I have a Florida LLC and a registered agent there, so that should give me a Florida addresses for federal and state income tax filing purposes. My future LLC income will be from work from home IT consulting and short term rental income through Airbnb and similar (or I can choose to receive the income in my personal name directly via SSN instead of EIN for the corp). These properties are located internationally (Colombia). Airbnb requires either a social security number or an EIN for tax purposes for US persons, or if being paid to a US bank account. I reside primarily in New Jersey at the moment. I have a NJ driver license. Thank you!
Hello, paying taxes doesn’t come down to where your address is. It comes down to where you’re a bonafide resident. So in an audit, you’d easily get busted for avoiding New Jersey taxes.
Thank you for sharing the knowledge. This is very helpful! Besides Nevada, Wyoming and Delaware, I believe New Mexico is also the state which allows you to have an anonymous LLC? What are your thoughts on it? Is it also hyped up?
I live in CA, but currently have my investment property in CT. I’m debating to form an LLC in CA due to high minimum franchise tax to pay each year. Would that be better to form an CT LLC and register a foreign LLC in CA if I end up doing business in CA in the future? Or vice versa?
Thank you so much!
You’re very welcome Hallie. Correct, New Mexico is also a relatively well known state for LLCs. No Members are required to be listed in the Articles of Organization (although some politicians have tried to get bills passed to change this; no success yet) and there is no Annual Report. There’s actually over 20 states where Members aren’t required to be listed. On of which is Ohio, a state I personally like. There’s also no Annual Report there. But anyway, to your question. You could do the domestic LLC in either state; hard to say which one is the winner. I guess one thing to consider is this: you could form a Connecticut LLC and foreign qualify in California. Then if you ever move out of California, you can cancel the CA foreign qualification. Hope that helps.
While some of this may be true, California has a very high annual state tax of $800 a year after the initial setup. There are no benefits to setting up an LLC in California. Other than not needing a registered agent. This is 2022, not 2020 when this article may have been relevant. However much of this information is out of date and needs to be updated.
Hi Christopher, this article is still up to date. I recommend checking out when is an LLC doing business in California.
Hi Matt, I am deciding if it is worth opening a single-person LLC in CA vs remaining an independent contractor. I am in art business and reside in CA while work globally. My main goal is legal protection under LLC. From what I read, a single-person LLC does not have much protection though. I would like to know your opinion. Thank you
Hi LP, simplistically speaking, a Single-Member LLC is far better than a Sole Proprietorship. Hope that helps :)
Good day is it a good idea for a non-US resident to form an LLC in New Mexico? Will I have good asset protection and low fees?
Hi Anne, yes, New Mexico is a good state for non-US residents. And yes, there’s no LLC Annual Report, so it’s more affordable.
I am trying to setup my LLC for Credit Repair and my home state is actually Delaware. Due to the nature of my business being credit repair, I have clients for DE and referrals where the clients live in Philadelphia, NJ, SC etc…
Is there anything further I would need to do regarding setting up my LLC if I have clients who hire my service and they live out of state? I just want to make sure I’m doing everything legally and correctly on my end.
I believer I read something about having to have surety bonds in each state you do business in but again I’m based in DE and the clients live in other states. My business is ran remotely online and I speak with prospects via phone and email only.
I hope I explained this right with out causing confusion on your end.
Hi SG, apologies for the slow reply. You don’t need to register your LLC as a foreign LLC in the states where you have customers. So a Delaware LLC is fine. Regarding the surety bond, that isn’t an LLC requirement, but it may be a regulatory requirement in the credit repair space. We’re not sure, so you’ll want to look into that.
I’m in the development stage of launching a small semi-truck logistics LLC and I’m weighing the options between WY, NV, and CA. It seems that all things equal WY would be advantageous over NV, but I’m hoping for clarity on WY vs CA, as CA it is my home state – although I wouldn’t be conducting business here more than anywhere else.
Being that my affairs would be conducted in all of the lower 48, does filing in WY bring any advantages over CA?
Do I have to file a foreign LLC for each & every state I’m transporting within?
Would double taxation be implemented in any of the above?
My best, Derrick
Hi Derrick, please see When is an LLC doing business in California? As per Section 23101 (a & b) of the Revenue & Taxation Code, your LLC will be doing business in California. So if you formed an LLC outside of California, it would need to be registered as a foreign LLC in California and will still have to pay franchise tax and file LLC returns with the California Franchise Tax Board.
Your LLC won’t need to be registered as a foreign LLC in the lower 48, because that is known as inter-state commerce (as opposed to intra-state commerce). And no, there wouldn’t be double taxation. Hope that helps :)
I have a question: If I have a company in WY, but my prep center is in VA, do I need to get a reseller certificate in WY or is it better to get it right in VA?
Hi Anastasia, your LLC can get a reseller certificate in any state needed. It sounds like your Wyoming LLC is doing business in Virginia. In that case, it should be registered as a foreign LLC in Virginia.
Thank You, Matt.
Could you also help me with understanding since when a company have to turn in the reports? What is considered as a commencement of company’s activity?
Hi Anastasiia, regarding LLC Annual Reports, those are filed with the Secretary of State each year. Please see Wyoming LLC Annual Report. If you have to file taxes, the forms and due dates vary. You’ll want to speak with an accountant about that.
Hey Matt, I’m interested in creating an anonymous LLC in New Mexico so that the owners are not visible. We’ll have to register it as a foreign LLC because the main LLC will be based in Illinois where I live. Would this arrangement cause the owners to be exposed anyway since Illinois LLCs require their owner to be disclosed? Is there a way to structure the two LLC’s as an Illinois resident whereby the owner of the LLC can be anonymous?
It’d be for an online retail business so why can’t only one anonymous LLC be registered in New Mexico since when I file taxes I can just set the 1099 forms as a New Mexico address? How would anyone know? (Other than the fact I get paid from a New Mexico LLC while living in Illinois.)
Hi Phil, because the Illinois foreign LLC form (Application for Admission to Transact Business) and the Illinois LLC Annual Report require Managers to be listed (if the LLC is Manager-managed) or Members to be listed (if the LLC is Member-managed), this would likely require you to disclose yourself. You could hire someone as the LLC Manager and list them.
Alternatively, you could form a New Mexico LLC and have the New Mexico LLC own a Domestic LLC in Illinois. In this manner, an Illinois LLC Articles of Organization would be filed and you can list the New Mexico LLC (and the New Mexico address) as the LLC Member or LLC Manager.
Either way, you would most likely want to hire someone to make those filings so that they sign the forms instead of you. Hope that helps.
We formed a real estate LLC in Nevada in 2015 when we were living there although the real estate is in Hawaii. However, we have recently retired to Texas. Since we do not do business in Texas do we have to register as a foreign LLC in Texas?
Hi Maria, if the Nevada LLC is not doing business in Texas it doesn’t need to be registered as a foreign LLC.
Hi Matt, thanks for the great information. We are currently forming a oil and gas related company that will not be profitable until 2022 and at that time will move to and do business in TX, but until next year we are in CA. Since we know the business will be moved to TX should we file our LLC in TX and register with CA as a foreign company?
Hi Gary, you’re very welcome. That is a better way to go. Form the LLC in Texas, foreign qualify in California, and then cancel that foreign qualification after you leave California. Hope that helps.
Fantastic advice! Thank you!
hi. i am a foreigner non us resident. i have a friend in us in state 1. i want to make him member in LLC. but we want to make LLC in a state 2. the LLC will be on my name means on foreigner name but have member in us. do we still have to make foreign LLC in state 1?
Hi Jamshaid, if you form the LLC in State 2, but the LLC is doing business in State 1, then the LLC needs to register as a foreign LLC in State 1.
So, “form it in your home state or where the LLC is generating revenue, unless you’re a non resident alien”: maybe you could advise non resident aliens on the best state(s), then. Cost, privacy, easiness of finding a bank, easiness of doing filing and stuff online, easiness of finding a registered agent, easiness of getting a sales tax ID, …
Hi Nick, I wish it were that simple. It’s actually very complex to research and write. And many non-US residents are concerned about taxes. There are dozens of business activities that foreigners engage in. To really cover is comprehensively will take us some time. It’s on our list though. In the near future, we’ll have more comprehensive information for non-US residents. However, the LLC Registered Agent we recommend offers service in all 50 states. If you’re curious about LLC costs, please see LLC filing fees by state. And please see LLC bank account for non-US residents. Hope that helps. And thank you for your understanding.
What about the reseller certificate (= sales tax ID)? Do you know if some states offer it for cheap, online filing, done quickly, etc.?
Hi Nick, we don’t cover sales tax at this time.
This is the clearest explanation of where to file that I have read (and I’ve read a lot). Kudos. My question is: for a real estate LLC is there any benefit to having a local LLC and a parent LLC in another state for “corporate veil” purposes? Thanks again
Hi Ross, thank you very much. The corporate veil is really about treating an LLC as a proper legal entity (ex: not commingling funds) and not using the LLC to commit fraud. In rare circumstances, the corporate veil can still be reached through in layered ownership. Some benefits of a holding company LLC (Parent LLC) owning Child LLCs (in the states where there is property) is a consolidated federal tax return (assuming default tax treatment of Child LLCs) and isolation of liability among properties. There are more advanced things than can be done, but those are best to discuss with a tax attorney and an asset protection attorney (or a few). Hope that helps and thank you for your understanding.
taxation is theft, ill not comply
We wish you luck :)
I live in Ohio and my brother lives in California. We would like to start an LLC to buy stocks. Also we would like to do Real estate business in Texas. We are planning to start an LLC in Delaware. Do we need to form foreign LLCs in CA/OH and TX?
Hi Pravan, please see when is an LLC doing business in California. You will likely need to foreign qualify your Delaware LLC in California, Ohio, and Texas since the LLC will be transacting business in all of those states. You may also want to consider separating risk. Meaning, not having the same LLC own real estate that also invests in stocks. If there is an issue at a rental property, you likely don’t want that impacting your investment portfolio.
You can use separate LLCs (owned by you and your brother) or you can also look into forming a Parent LLC (aka LLC holding company) and that LLC doesn’t do any business except own other LLCs. For example, you form a Parent LLC in Delaware and that Delaware LLC owns an Ohio LLC that invests in stocks. The Delaware LLC also owns a Texas LLC which owns an investment property. In that case, the Delaware LLC wouldn’t need to foreign qualify in California (or any other state), since it’s not transacting business, however, in that example, both the Ohio and Texas LLC will likely need to foreign qualify in California because California has very strict rules about doing business in the state. It may also be a good idea to speak to an asset protection attorney and/or a tax attorney as there a few ways you can structure things. Hope that helps.
If you want inside and out side protections from an LLC, and Nevada and Wyoming both give them, wouldn’t it be better to have two? the State you do business in and NV or WY to protect you from outside lawsuits?
Hi Michael, we recommend speaking with an asset protection attorney in the state where you reside. If you are personally sued, the laws of Nevada or Wyoming will most likely not apply, even if you own an LLC in those states. Asset protection and charging order protection is not as straightforward as most other sites and videos make it out to be. Hope that helps.
Hi Matt, Happy Christmas!
That is awesome article, Thank you!
I am non-us resident, and l live in overseas. I am trying to form my single member LLC in Wyoming.
I am looking for a suitable agent, and I found that there are different mail forwarding fees, such as 40/month of northwest or 50/yr of other agents.
My first question is that why there are so big price differences among these agents?
Besides, I really really need a utility bill to verify my business address.
Could you please give me some advice how I can get these bills?
Can I buy an internet or phone number service and require them to mail these bills to my business address? Does it work?
About business address, Should I buy a mail forwarding address service for getting these bills? or Can I use this agent address?
Thank you very much!
Hi Timber, Merry Christmas! And thank you :) A Commercial Registered Agent’s “base fee” (the affordable yearly fee) is really just for Service of Process (legal mail, like a lawsuit) and state correspondence (ex: a letter from the Secretary of State’s office). If you want to get more physical mail sent on a regular basis for other business purposes, that’s when mail forwarding would be used. Can I ask what you need the utility bill/address verification for? There may be another solution depending on the situation.
Thank you for reply!
I need a utility bill like gas/water/internet to verify business address for my Amazon seller account.
Amazon need this utility bill to verify that I’m operating my firm.
Okay, I see. If you would have replied about opening an LLC bank account, we have a solution for you (see non-US resident opening LLC bank account), however, we don’t have a known solution for the utility bill and address verification for Amazon. However, check out the virtual office service from Northwest Registered Agent. They offer a lease with their service. You may want to call or email them with any questions. And also check with Amazon to see if that’s acceptable.
Hey Matt, is still waiting for IRS to send me the EIN for the Delaware LLC I setup in oct . It has been over 6 weeks since I faxed the docs . Any update on what is the situation with others on ground ?
Further , I am in the biz of of services – Shipping and logistics . My counter is based across 3 states in US . What we do is , we buy services from vendors and sell it to end customer as one point contact . An integrated solution. We do not physically exist in the state where the shipment is happening .
Often the shipment starts from shipper in point A ( say Columbus Ohio) and ends exiting Norfolk , Virginia
I invoice the customer who operates from Canada for this whole process
And pay each of the vendors based in Ohio and Virginia
So where is the point of service and taxes payable .
Complicated ?? :)
Hi Parmeet, it can take up to a few months to get your EIN approval faxed back. However, you can call the IRS after 45 business days (from the date the fax was sent) and request an EIN Confirmation Letter (147). You’ll want to speak with an accountant regarding your tax obligations. Thank you for your understanding.
Hoping you can shed some light on LLC formation. I’m looking at forming an LLC to hold partnership interests (LLC invests as limited partner in real estate development partners, receives K-1s). The LLC will have several members who hold various % ownership interest spread across several states. Since the underlying partnership interests are all passive investments, is any state where one or more members reside a valid location?
Thanks in advance!
Hi Al, an LLC that just holds partnership interests in an LP is unlikely to be deemed transacting business in any one location. You’re likely fine to choose any state you’d like.
Hey Matt, I am a government employee living overseas. I do not have property or residence in the United States. However, I do have an APO mailing address, which is essentially a US mailing address. I have no idea where I will live when I return to the US, and I don’t know when I will return. I planned to start an LLC in Wyoming strictly for my online business until I ran across your page. If not Wyoming, Nevada, or Deleware, where should I, as a displaced American, register my business?
Hi Barry, in this case, since the LLC will not be “transacting business” in any particular state, you can form an LLC in any state which you like. When/if you later return to the states, you can register your Wyoming LLC as a foreign LLC in the state you move to (the state where the LLC would then be transacting business). Hope that helps.
Awesome! Thank you, Sir!!
You’re welcome Barry :)
Great article, thank you!
I’m a foreign real estate investor and currently own land in CO. I would like to set up an LLC for tax benefits when I sell the property and eventually reinvest. Since I’m a non US citizen and do not reside in the US, would it still be best to form the LLC in CO since that is where my current property is, or take advantage of different states benefits and form the LLC elsewhere? Thanks!
Hi Shamsa, if you formed the LLC outside of Colorado, but the LLC is transacting business in Colorado, it should be registered as a foreign LLC in Colorado. Regarding any tax strategies, we recommend you speak with an accountant (or a few). Thank you for your understanding. Hope that helps.
Thanks for all the useful information. I live in California and I’m looking into creating an LLC for the sole purpose of overseas real estate investment. Since there’s no business to speak of happening in the US, does it matter much which state I register in? California would be the most convenient as far registered agents and such but also seems that it’s the most expensive state.
Hi Craig, because you reside in California, we recommend checking out when is an LLC doing business in California. In short, even if you form an LLC out-of-state, you will still likely need to register that LLC as a foreign LLC in California.
Hello, my business partner and I are forming a business and we are looking to form a LLC. He is a resident of Georgia but resides with me in DC half the year. We are deciding whether we should file the business in DC or GA. Tax purposes and start up fees point us to GA, but the manufacturing of products that will be sold online will more than likely happen in my home in DC. We have limited startup capital, which state should we file? Thank you in advanced!
Hi Niko, since the LLC will be transacting business in DC, you should form your LLC in DC. If you formed the LLC in Georgia, you’d have to register it as a foreign LLC in DC. Hope that helps.
Thank you for the response Matt!
Would we have to register a foreign LLC even if he is a resident of Georgia?
You’re welcome Niko. If the DC LLC is also doing business in Georgia, then it should register in Georgia as a foreign LLC.
I live and pay taxes in CA. In 2011, I bought some APTS in AZ and formed a AZ LLC. In 2016, I refinanced my AZ APTS, and purchased under my AZ LLC, and bought a NNN Fast Food in CO.
Now in Nov-2020, I now sold my APTS in AZ and exchanging all my proceeds into a Land Development deal in NV for 24 homes, where the intention is probably to sell the land after I build the infrastructure within 18 months. Also, I expect to sell the NNN in CO within 18mo, as the tenant has a purchase option.
Would you recommend just keeping my AZ LLC for now, and just wait for these future events to occur, or do I collapse my AZ LLC now that no activities occur there, and just form a new CA LLC for all my real estate activities that will mostly continue to occur outside of CA. Although my AZ LLC has no annual fees, I still must have an agent at $125/yr and file an annual return, even though I won’t have any more activity.
Hi Jack, you don’t want to dissolve the AZ LLC now as you’ll run into title issues when you go to sell the NNN in CO. We recommend leaving the AZ LLC open until all activities are completed. Looking forward, you may want to look into setting up a holding company LLC, say, in California. Then that holding company (aka Parent LLC) owns subsidiary LLCs (aka Child LLCs). Each Child LLC is formed in the state in which it’s conducting business. That will help “unbundle” liability risk. However, it may make financing a bit more complicated. Hope that helps.
Thank you for all the helpful information. I am an American citizen (originally from NY) but I have been living and working in Spain for the past 5 years. I will be starting a new job in January of 2021 with an American company working remotely from my house in Spain and the owner recommended that I set up an LLC since I will not be an employee but more so an independent contractor.
I am not sure if I should set up my LLC with New York state, as that is technically my home state and I have a NY state drivers license, or if I should set it up with another state to avoid the pricy fees. As I mentioned before, I do not actually live in New York. I only have my parent’s house down as my address on my license and passport, and go back to visit once or twice a year at most. I do have a short term Spanish residency card that I renew every 2 years and am registered in the house I currently live in there.
Hi Maxine, you’re very welcome! First, forming an LLC isn’t what makes you an independent contractor. You could also operate without an LLC and still be an independent contractor. We’re not saying don’t form an LLC; just an FYI. Since you’re not physically present in the US (and won’t be for many years it seems), you can form your LLC in any state you’d like. On the other hand, if you were soon returning to New York, you’d want to form the LLC there as it would soon be “transacting business” in New York. However, that doesn’t seem like the case. Hope that helps.
This is very helpful information! Thank you so much for posting, the videos really help!
My sister and I are starting an LLC Partnership. We reside in Wisconsin and NC. Wisconsin seems like the better option to file for an LLC. If we are conducting online business in both/many states, would we have to file for an LLC in multiple states or could we just file in one?
Also, I am a military spouse, so we move every 3-5 years. How would this affect the LLC?
Hi Ashley! You’re very welcome :) If the LLC is formed in Wisconsin, but the LLC is also transacting business in North Carolina, it’s supposed to be registered as a Foreign LLC in North Carolina. Tell your spouse, thank you for their service! We greatly appreciate it. Since you move around a lot, you are supposed to qualify your out-of-state LLC as a Foreign LLC in the state where you are doing business. Then if you stop doing business in that state, you file a “withdrawal” of the LLC’s Foreign qualification and then file a new Foreign LLC qualification in the new state. It can be a little cumbersome. However, I hope that helps.