Best State to Form an LLC

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What’s the Best State
to Form Your LLC in?

Summary: For most people, it’s best to form your LLC in your home state. Since that is where you’re legally transacting business. Even an online business is still transacting in your home state. Forming an LLC in Delaware, Nevada, or Wyoming usually ends up costing a lot more. More headaches, too. Two exceptions: non-US residents can choose any state. And real estate investors often form a parent LLC in Wyoming, then the Wyoming LLC owns a child LLC set up in the property state. One quirk: if you live in California, you’ll 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 LLC as a foreign LLC.

Video Transcript:

In this video I’m going to tell you why you shouldn’t form your LLC in any of the hyped up states like Nevada, Wyoming, or Delaware and why it’s best for you to form your LLC in your home state. We hear stuff like this all the time. ‘Nevada has no corporate income tax. Wyoming LLCs are the most affordable. Delaware is the best state to form an LLC in.’ To be completely honest with you, it’s mostly a bunch of BS. The disadvantages of forming an LLC outside of your home state far outweigh the perceived advantages. Let’s first talk about domestic LLCs and foreign LLCs. 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. 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. This means you now have two LLCs. One in Nevada and one in your home state. You have to pay two state filing fees. You’ll be required to pay for a registered agent in order to use their address for your Nevada LLC and you have to pay two annual report fees. We used Nevada as an example, but this same thing applies to any out of state LLC. In short, this can easily add up to double the cost and double the headaches since you now have to maintain two LLCs. We know the reason that most people become interested in Nevada LLCs is because they think they are going to save money on taxes. Many people are misled into forming LLCs in other states to take advantage of tax savings. This is simply not true. In this example, if you’ve formed a Nevada LLC and that LLC is doing business in your home state, not in Nevada, you still need to pay taxes in your home state because that is where you’re making money. A helpful saying to remember is that, ‘Taxes are paid where the money is made.’ Again, your foreign LLC will need to pay taxes in your home state since that’s where you’re operating and doing business. Even worse, you may owe additional taxes and fees in Nevada. Why do so many websites talk about Nevada? It’s a great question. Let’s dive into it a little bit more. Again, most of the benefits of forming an LLC outside of your home state are a far stretch from the truth. Both the states themselves 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 in annual revenue for the state. That’s 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 the 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’re forming your LLC in Nevada, there is nothing wrong with that. If you don’t live in Nevada, again, it’s much better to form your LLC in your home state. What about Wyoming? Although there’s less fraudulent activity that takes place in Wyoming compared to Nevada, this state is also hyped up. Again, the advantages of forming an LLC outside of your home state far outweigh the perceived advantages and they’re not worth the extra hassle, time, or money. In fact, it will cost you a lot more in the long run. Before we discuss forming an LLC in your home state, let’s talk about Delaware. Although small in geographical sense, Delaware is quite large in terms of business activity. In fact, according to Wikipedia, over 50% of US publicly traded corporations and 60% of the fortune 500 companies are incorporated in Delaware. Did you hear the two words that I emphasized? Corporations and incorporated. You’ll notice that these statistics say nothing about LLCs. The fact is that Delaware is a good state to form a company in if you’re a corporation. 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. Most of our customers don’t fall into that category. If you form an LLC in Delaware, but you don’t live there, you’ll still run into the same situation. You’ll 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 then you should form your LLC in your home state. Takeaways. Again, forming your LLC outside of your home state is just not worth the hassle and costs. This goes for Nevada, Wyoming, Delaware, and any other magical state. Attorneys Alexander Davey and Dana Schultz agree. Most of these states are just hyped up. Form your LLC in your home state. What about internet based and online companies? Even if you have an internet based business, you cannot get around your state’s tax obligations simply by forming your LLC out of state. For example, if you live in Florida and you run your online business from your home or mostly from your home, then you have a Florida business. Your best bet is to form your LLC in Florida. Now, forming your 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 it is the easiest is because it is the right way to do it. If you have any trouble determining where your home state is, ask yourself the following questions. What state are you a resident of? Where do your employees reside? Where do you pay state taxes? If you own property, where is it located? Where is your office or where do you work from? Where’s the business physically located? Where do the LLC members or owners have a physical address? We hope this information is helpful to you and that it has cleared up a lot of hype and misinformation about which state is best to form your LLC in. Now, there is one exception and that’s real estate LLCs. As we mentioned earlier, when operating a business it’s best to form your LLC in your home state. This is usually not the case for real estate LLCs. Of course, if you’re investing in real estate in the state where you live, then yes it makes sense to form your LLC in your home state. If you’re investing in real estate located in another state, it’s 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 issues that we mentioned earlier. You’ll be required to register the domestic LLC in your home state as a foreign LLC in the state where you are purchasing property. Which means you 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 two LLCs. In summary it’s best to form your LLC in the state where you are buying property. I hope this information is helpful for you. If you have any questions, please contact us.

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 form an LLC!”

To be completely honest with you, it’s mostly B.S. and doesn’t apply to the vast majority of people forming an LLC.

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.

This means:

– you now have 2 LLCs (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 LLCs.

Now, we know the reason that most people become interested in Nevada LLCs is because they think they are going to save money on taxes.

Need help with your LLC? Have a professional LLC service file for you:
Northwest ($39 + state fee) or LegalZoom ($149 + state fee)

Taxes Are Paid Where Money Is Made

Many people are misled into forming LLCs in other States to take advantage of “tax savings”.

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?

Great question.

Nevada

Again, most of the benefits of forming an LLC outside your “home state” are a far stretch from the truth.

Both the states themselves 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 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’re forming your 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 Wyoming?

Wyoming

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 reside 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…

Delaware

Although small in a geographical sense, Delaware is quite large in terms of business activity.

In fact, according to Wikipedia, 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 is a good state to form a company in… if you’re a Corporation.

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 customers do not fall into that category.

If you form an LLC in Delaware (but don’t live there), you will still run into the same situation:

– you’ll 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, then you should form your LLC in your home state.

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. Form an LLC in your home state.

Online Business

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.

Most people run their online business from their home. That’s where you’re legally doing business. And that’s where you should form your LLC.

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 state 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 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.

LLC in Your Home State

This is the least expensive, easiest to setup and the best long-term strategy for your LLC.

The reason it is the easiest is because it is the right way to do it.

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 setup their ‘5 LLC asset protection strategy’ to protect their new Taco stand idea.”

If you have any trouble determining where your home state is, ask yourself the following questions:

– What state are you a resident of?
– Where do your employees reside?
– Where do you pay state taxes?
– If you own property, where is it located?
– Where is your office/where do you work from?
– Where is the business physically located?
– Where do the LLC members/owner have a physical address?

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 in.

Now, there are some exceptions…

Non-U.S. Citizens and non-U.S. Residents

Note: You don’t have to be a US citizenship or a US resident to form an LLC in the USA. Anyone can form an LLC 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. If you’re 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 the 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 international taxes and your business.

Real Estate LLCs

As we mentioned earlier, when operating a business, it’s best to form your LLC in your home state.

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.

Matt Horwitz
Founder & Educator, LLC University®
Forming an LLC shouldn't be so complicated. Our step-by-step guide will make the process a breeze – and no complex legal jargon! LLC University® teaches people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your business journey.
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.

67 Comments

  1. kevin February 2, 2019

    I own Properties out of state. My understanding is the ideal situation is to form an LLC in Wyoming because it has the most protections for charging orders. Then all the properties are set up in LLCs in the state they reside so you have legal standing there but all are owned by the master LLC in Wyoming. Does this make sense?

    reply
    • Matt Horwitz February 9, 2019

      Hi Kevin, yes, this is a popular setup for real estate investors. We will be putting together a guide on this in the near future. The “parent” LLC is in Wyoming, then all “child” LLCs are formed in the property states and are owned by the Wyoming LLC. Hope that helps.

      reply
      • Duc Tran February 7, 2020

        Hi Math,

        thank you for the super information. I read your answer: “Hi Kevin, yes, this is a popular setup for real estate investors. We will be putting together a guide on this in the near future. The “parent” LLC is in Wyoming, then all “child” LLCs are formed in the property states and are owned by the Wyoming LLC. Hope that helps.:

        could you please help to let me know where I can find this exact guideline? I would like to follow your guideline to start to open child LLCs and Parents LLC. Do you know the people who charge reasonable rate to help for these?

        thank you so much,
        your help is greatly appreciated.

        reply
        • Matt Horwitz February 15, 2020

          Hi Duc, we haven’t published such a guide yet. We’re not sure our stance on this as we haven’t had the time to thoroughly research all the pros and cons. While yes, it is sometimes common, we’re not sure it’s always best for every situation. Each person’s “setup” varies quite a lot. If you want to file something like this yourself, you’d form the Wyoming LLC first, then form the other LLCs. If the Member is required to be listed in the Articles of Organization (or Certificate of Organization or Certificate of Formation), then you’d list the Wyoming LLC there and in the Operating Agreement. If the Member isn’t required to be listed in the Articles of Organization (or Certificate of Organization or Certificate of Formation), then you’d just list the Wyoming LLC as Member in the Operating Agreement. Hope that helps.

          reply
      • Duc Tran February 7, 2020

        HI Matt,

        thank you so much for your valuable education. I have been talking to many companies, they all charge a lot of money to create the LLC.

        could you pls help to guide me how I can start and who I can hire to do the work at a reasonable cost?
        here is my situation:

        1/ I am resident in CA
        2/ I have rentals in 3 different State: CA, MI, and Ohio.
        3/ I don’t have any LLC yet. Everything was bought under my personal name. Yes, I know this is risky. and I am working hard to correct it.

        I read on internet, and have general idea as:

        1/ I should open 1 LLC in each State, in this case, one in CA, one in MI, and one in Ohio. Total of 3 LLCs. these are consider as child LLC
        2/ Then, I open a Parent LLC in Wyoming to hold the other 3 child LLC
        3/ Since I don’t live in Wyoming, I need to pay to have register Agent so all documents will send to the register Agent. Each letter the register Agent get, when they forward to me, they will charge me a fee.

        Are the above concept correct? here are the question:

        from #1, I will pay an annual fee for each LLC in each of the state CA, MI, and Ohio. MI and Ohio fee is low. CA is $800 per year.

        I read your article about we still have to register the Wyoming in CA, so, I need to pay an extra $800 for the Wyoming LLC?

        Could you please help to guide me? and send me to the people who can help me?
        thank you so much Sir,
        your help is greatly appreciated.

        reply
        • Matt Horwitz February 15, 2020

          Hi Duc, we recommend running this scenario by an attorney (an experienced one) in California since you may need to register some (or all) of the LLCs as foreign LLCs in California. California law (corporate law and revenue and taxation law) is very strict as to their definition of “transacting business”. Please also see this page: Is my LLC doing business in California. And possibly as an alternative, you could have a California parent LLC. You’ll want to look at all options. I wish we could tell you exactly what you “should do”, however, it’s a gray area. Hope that helps.

          reply
  2. kevin February 10, 2019

    Wow Matt, thanks for the reply. That would be awesome. Any idea when? I’ve been putting it off. I spoke with a company that charges $1800+ to set up the LLC in Wyoming and they say they put in clauses that others don’t in their operating agreements that makes theirs superior to others? Ever heard of this?

    reply
    • Matt Horwitz February 10, 2019

      Hey Kevin, it’s towards the top of our list, but there’s a few things in front of it. Not sure the exact timeline yet. In the meantime, I just sent you an email. Thanks.

      reply
  3. Greg February 11, 2019

    Hi Matt,
    I read through many (not all) of the comments and unfortunately did not come across one similar to mine (but apologies if you already responded to something similar). Here is my scenario: I am a resident of and do all my banking in California. A separate Delaware LLC was formed with a separate California foreign LLC for each of the 16 investors in a California rental property. Each LLC was a member of an umbrella LLC. The property was sold and even though the overall umbrella LLC was dissolved, I modified my articles of incorporation to include newly purchased investment portfolios that include properties in multiple states. Every year I pay income taxes in those states for the rental income (my portion of the rental income is so small that I pay between $1 and $15 for the different states where taxes are due). Soooo, here are my questions:
    1. Is there a reason to open an LLC in each of those states (there are 10 states that have income tax requirements)? My real estate dealings are so small and the structure of the investments is such that I’m a small percentage of a big investment that is managed by a management company.
    2. I do not think I need to maintain the Delaware LLC as none of my investment properties are in the state of Delaware. Is it possible to cancel the Delaware LLC and change the California foreign LLC to a domestic LLC without cancelling the California foreign LLC and registering a new domestic LLC?
    (I hope this made sense…. I know, I should consult a tax lawyer….) Thanks for any feedback.

    reply
    • Matt Horwitz February 15, 2019

      Hi Greg, this question feels quite complex. Best practice to run something like this by an attorney or qualified tax professional. Generally speaking, your LLC won’t have to register as a foreign LLC simply by nature of having to file a state return. The later question would imply a “re-domestication”, called a conversion in California. The Delaware LLC can convert into a California LLC. The Delaware LLC can then withdraw its foreign LLC authority and dissolve in Delaware. Hope that helps and thanks for your understanding.

      reply
    • Deborah February 7, 2020

      Hi Matt, I read thru your valuable information. I need clarification regarding llc. I live in Washington and own a mine in Oregon. We bring our product up to Washington to sell. We plan to have seasonal part time workers out of Oregon. Do we need LLC. For Washington and Oregon or just Washington?

      reply
      • Matt Horwitz February 15, 2020

        Hi Deborah, it sounds like you’re transacting business in both states. You can form an LLC in Oregon and register it as a foreign LLC in Washington or you can form an LLC in Washington and register it as a foreign LLC in Oregon. Hope that helps.

        reply
  4. Esther February 12, 2019

    Thanks for your invaluable info! Question: If I am creating an LLC in order to do airbnb arbitrage which state do I choose? The state I live in (California) or the state I will be doing airbnb arbitrage in or a state that has low fees (Wyoming)?

    Airbnb arbitrage is forming a corporation and then renting corporate units from apartment complexes and using them as rentals on airbnb to make a profit fyi.

    reply
    • Matt Horwitz February 15, 2019

      Hi Esther, where an LLC should be formed (or registered as a foreign LLC) comes down to where it is legally transacting business. California is very strict, both via corporate law and tax law, as to the definitions of “transacting business”. Most California residents’ LLCs will be doing business simply by the nature of being a California resident. Please see when is an LLC doing business in California for more details. Therefore, if an LLC were formed outside of California, it would then need to be registered as a foreign LLC in California. Furthermore, California LLC franchise tax will still need to be paid, in addition to other applicable California returns with the California Franchise Tax Board. Generally speaking, in the example of Airbnb arbitrage, if an LLC were formed in California, it would then need to be registered as a foreign LLC in each state where properties are being arbitraged (since the LLC will be transacting business in those states as well). Hope that helps.

      reply
  5. Marie February 12, 2019

    Hi Matt,
    I live in NY and i own real estate (rental property) in Alabama, do i need 2 LLcs?
    Thanks in advance.

    reply
    • Matt Horwitz February 18, 2019

      Hi Marie, where an LLC should be formed (or registered as a foreign LLC) comes down to where it is transacting business. In this case, you’re transacting business in Alabama (and possibly New York). You could form an LLC in New York and then register the NY LLC as a foreign LLC in Alabama. Another option is to form an Alabama LLC (or LLCs) that is/are owned by an LLC formed in New York. Or you may just be able to form an LLC in Alabama (a “domestic” LLC). It’s best practice to speak with an attorney about this, as there are a few ways to go about setting it up. Once you figure out your setup, you’ll want to transfer title of the property into the LLC. Hope that helps and thanks for your understanding.

      reply
  6. Alonzo Noble February 16, 2019

    Hi I’m looking to set up a LLC and start investing in renal real estate. I will be registering in the state I plan to do business in. My question is I don’t want to limit myself to just one state. So if I decided to do business in other states and I didn’t want to register my LLC as a foreign LLC every time I invested in real estate in another state other then the one I live in, how would I approach that scenario?

    reply
    • Matt Horwitz February 18, 2019

      Hi Alonzo, if you registered your LLC as a foreign LLC in all states where property is held, it’s important to also know that you still have just 1 LLC, not multiple LLCs. Some investors prefer multiple LLCs. There’s one variation. You could also form domestic LLCs in the states where the properties are located. You could also form a parent LLC in one particular state and then form child LLCs in the states where properties are located. The domestic child LLCs would be owned by the parent LLC. The answer isn’t cut and dry. And it’s best practice to discuss your situation and options with an attorney… or a few. Hope that helps.

      reply
      • Alonzo Noble February 19, 2019

        Hi Matt. Thanks for the info. I don’t like the idea of have multiple LLC’s in different states and I think registering in my primary state and paging for a foreign LLC in every state that I do business would be pricey. So I think the parent and child LLC would be the way I want to go.

        reply
        • Matt Horwitz February 21, 2019

          Hi Alonzo, I don’t understand your reply. You said parent/child LLC will be the way to go, but then you said “I don’t like the idea of having multiple LLCs in different states”. It’s implied here that the child LLCs would each be formed in the states where property is located. Furthermore, having child LLCs (which just means an LLC being owned by another LLC) in multiple states will be very similar in costs to registering an LLC as a foreign LLC in multiple states.

          reply
  7. Azif V February 20, 2019

    Hi Matt, Hope all is well. I am real estate investor and i have a question on LLC in multiple state. I own few rental properties.

    1. Property A – in NY – Under Property A LLC registered in NY (Home State)
    2. Property B – in Mass – Under Property B LLC registered in Mass (Foreign State)
    3. Property C – in Alabama – Under Property C LLC registered in Alabama (Foreign State)

    Is it a Good Idea to open a New LLC in Nevada as a Parent company, and have Property A, B, C as a child under the Nevada entity.

    I assume i would have to pay the following:
    1. Pay annually for a Registered Agent for Mass, Alabama and Nevada
    2. Pay annual reporting fee for Mass, Alabama, Nevada and New York

    Thanks,
    Asif

    reply
    • Matt Horwitz February 21, 2019

      Hi Asif, yes, you’d have Registered Agent fees and annual report fees in each state where you have an LLC formed (whether the LLC is owned by you or owned by an LLC). It’s best practice to speak with an attorney about the holding company as you’ll need to assign your LLC Membership Interest for all 3 of the existing LLCs to the holding company LLC, if you take that route. You’ll also need to amend the Operating Agreements. There may be additional filings/changes needed in the states. For example, if you have registrations in place with the Department of Revenue/Taxation (or equivalent department). Hope that helps.

      reply
  8. Daniel Schilling February 20, 2019

    I have residents in two states. Arizona & Washington. My drivers license is AZ and my “primary residence” is as well. I also own a rental property in the state. I have a “2nd home” in WA state of which I spend about 50% of the time there. Most of my business is coming through WA however I bill my clients using my AZ LLC. I want to open another LLC and given that most of my business’ income comes through WA right now does it make sense to open a WA LLC too? I ask this because WA state does not have income tax. I am not sure that even though the business is through WA and I bill through my AZ LLC if I am required to pay state income taxes through AZ for the WA income. Thanks!

    reply
    • Matt Horwitz February 21, 2019

      Hi Daniel, it would be best practice to speak to a tax attorney or tax professional about this. Since an LLC is a pass-through entity, income should be apportioned to the state where it’s made. Meaning, your accountant should be filing in both states, and apportioning the income appropriately. Hope that helps.

      reply
  9. Conrad February 24, 2019

    Hi,

    i was thinking about buying a house to put on the market for rent, do i have to start a business for that? Can i open a bank account without a address over there, and can i get a loan to do this?

    thanks

    reply
    • Matt Horwitz February 24, 2019

      Hi Conrad, it’s not a requirement to form an LLC for real estate. It’s up to you. Yes, you can open a personal business bank account for this. If you qualify, then you can get a loan. That would be a conversation for a mortgage broker though. Hope that helps.

      reply
      • Conrad February 25, 2019

        Thank you for the info!

        reply
  10. Jay February 25, 2019

    Hi Matt,

    Looking to form in Wyoming but live in TN. Apparently I would have to also register the wyoming LLC in TN as a foreign LLC from what you are saying. Registering as a foreing LLC means applying for Certificate of authority which costs the same as forming an LLC ($300). So as far as cost it is more costly to have the Wyoming LLC + Foreign LLC in TN.
    But, what about the protection that Wyoming gives you from creditors vs LLC from TN?
    Wouldn’t that make it worth the extra cost? Also, this would be for a single member LLC, which apparently also makes a difference?
    I’d appreciate you comment on this if possible. Thanks

    reply
    • Matt Horwitz February 25, 2019

      Hi Jay, it this context, it would be more common to form an LLC in Wyoming and then they Wyoming LLC would own a domestic LLC in Tennessee. It’s best practice to speak to an attorney in Tennessee though, just to dive into the details. There may be other options available to you as well. Hope that helps.

      reply
  11. Ray T March 5, 2019

    I’m about to form a Multi Member LLC, I live in Florida and the other member resides in Maine. Our business will be all over the U.S., some could be in FL and some in Maine but not anymore than any other State. We will be producing mostly energy efficiency products as well as some consulting. I’m trying to decide the best State to form the LLC, do you have any advice?

    Thank you,
    Ray

    reply
    • Matt Horwitz March 5, 2019

      Hi Ray, where an LLC should be formed and/or registered as a foreign LLC comes down to where the LLC is legally doing business. These laws vary by state. Based on what you’ve shared, it sounds like your LLC will be doing business in both Maine and Florida. If that’s the case, you could form an LLC in Florida and register it as a foreign LLC in Maine… or you could form an LLC in Maine and register it as a foreign LLC in Florida. Hope that helps.

      reply
  12. Ray T March 5, 2019

    Hi Matt,

    Thanks for your timely response as well as all the information you provide here. I should clarify things a bit. Even though the members of the LLC or whichever entity makes the most sense, most of our business will be outside of FL and ME. I’m leaning towards an LLC based on simplicity and lack of double taxation. I believe for at least the 1st year or so, most of the business will come from CA. but from there on it can be from any State.

    Ray

    reply
    • Matt Horwitz March 5, 2019

      Hi Ray, you’re welcome. The details of what it means to be doing business can be a bit complex. Generally speaking, just selling to customers in multiple states doesn’t mean you are doing business there. While there may be a sales tax nexus if you’re selling physical goods, this is interstate commerce. So you may not need to register your LLC to do business in states just because you are selling to customers there. However, if you’re regularly consulting with clients in California, the state is likely to find you doing business there. Again, in general terms, where activities are happening in the context of running business is where an LLC is likely considered to be doing business. Having regular meetings in a state with clients is also usually considering doing business. Once you determine where to form your LLC, it may very likely need to be registered as a foreign LLC in one, or multiple, states. Hope that helps.

      reply
  13. Doug June 20, 2019

    Hi, Matt. I want to set up an LLC for a consulting business. Currently I live in Alabama, but will be moving to Arizona in 3-4 months. In which state should I set up my LLC?

    reply
    • Matt Horwitz June 20, 2019

      Hi Doug, what most people (with consulting businesses and businesses like that) do who are moving soon is form the LLC in the state where they will ultimately be residing and doing business. That’s usually the state where they are moving to. Hope that helps.

      reply
  14. John June 25, 2019

    Hello, thanks for this information. It makes sense but you’re the only one telling us this. I’m surprised some of the major sites like incfile and legalzoom, etc don’t tell us this. Do you know why?

    reply
    • Matt Horwitz June 27, 2019

      Hi John, while we can’t speak on behalf of other companies and why they make decisions, we can say this: if you dig a bit deeper into the research and/or speak with a few attorneys, you’ll find the same answer. An LLC needs to be formed (or registered to do business as a foreign LLC) in the state(s) where it is legally transacting business. And we’ve also seen articles on both states that talk about forming an LLC in your home state. Hope that helps.

      reply
  15. SK June 25, 2019

    Hi Matt,

    I am considering registering an LLC to manage my real estate investments. I own properties in my individual name currently in the following States:

    1) MD (currently – Home State)
    2) CT
    3) GA
    4) SC
    5) FL (most likely future retirement state)

    Where should the LLC be registered, in MD or FL? I do recognize that it would need to be registered in other states as a foreign LLC. Do I need to have a registered agent or can my property address in that state serve that function?

    Please advise.

    reply
    • Matt Horwitz June 27, 2019

      Hi SK, a property address will likely not suffice since the Registered Agent (assuming that’s you) won’t be there. We’re unable to comment as to where the LLCs should be formed and/or registered. There are numerous ways to structure/register LLCs when there are multiple assets and they are located in multiple states. Ultimately, regardless of where an LLC (or the LLCs) are formed, the LLC that is holding property either needs to be formed in that state where the property is located or registered as a foreign LLC in that state since that is where the LLC is legally transacting business. Apologies we couldn’t be more specific. We appreciate your understanding.

      reply
  16. Douglas July 1, 2019

    Hi Matt

    I am looking at starting remote health coaching business. I am a U.S. citizen but I am currently living in Germany with no plans to move back to the U.S. in the near future. My wife and I are registered as residents here in Germany. Prior to moving to Germany I was a resident of NH for my entire life. I still receive my U.S. based mail at my parents house in NH and have changed my address for my U.S. bank accounts and drivers license to their address. As a remote health coach I could potentially have clients from any state in the U.S. and would be paid electronically. To start I would be focusing on U.S. based clients but in the future I would be looking for clients from Europe as well. Would an LLC be the best type of business for me? Would an LLC registered in NH be considered a domestic LLC even though I am physically living in Germany?

    reply
    • Matt Horwitz July 6, 2019

      Hi Douglas, while we’re unable to say “you should form an LLC” or “an LLC is best for this situation”, it is most commonly used in situations similar to this. We have more information on LLCs and other entities here, if helpful: LLC vs Sole Proprietorship vs Corporation. And yes, even if you are resident in Germany, an LLC formed in New Hampshire would be a domestic New Hampshire LLC. Hope that helps!

      reply
  17. Roger January 7, 2020

    Interesting topic! I am a dual US/Canada citizen, currently residing in Pennsylvania and I have a single-member LLC registered in PA. My only work is consulting for a company in NJ. But I expect to move to Canada sometime this year, and continue consulting for the company in NJ. Can I maintain my LLC in PA when I reside in Canada? Can I report my consulting income (from my LLC) as ‘other income’ on my Canada tax return in the same manner as I do on my US tax return? (As a US citizen, I will still need to file a US tax return when I reside in Canada.) Any guidance will be much appreciated! I realize that I may need to find a Canada/US tax accountant…

    reply
    • Matt Horwitz January 9, 2020

      Hi Roger, yes, you can keep your Pennsylvania LLC while residing in Canada. You’ll want to speak with an accountant familiar with both jurisdictions. Typically, Canadians with US LLCs have to pay tax twice; once to the IRS, and a second time to the CRA. We recommend reaching out to GW Carter as they specialize in taxes for non-US citizens and non-US residents.

      reply
      • Roger January 9, 2020

        Hi Matt, thanks very much for the reply.
        Is there any way to avoid the double taxation? I’ve considered that I could change my consulting agreement and just get paid directly as an individual, not via the LLC. But then I would lose whatever liability protection that I have with the LLC.
        Roger

        reply
        • Matt Horwitz January 9, 2020

          Hi Roger, you’ll need to speak with an accountant. We haven’t researched and written in depth about Canadians owning US LLCs yet. Thank you for your understanding.

          reply
  18. Robb January 28, 2020

    Hi Matt,

    I want to setup an LLC as a beneficiary to a living trust. As such it won’t be doing anything other than acting as a placeholder until the trustor dies at which time, it receive all the property and begin managing that property for the members. I live in CA. I don’t want to have to pay the $800/yr franchise fee for a Calif. LLC that isn’t doing any business until it actually starts doing business. In this situation, it would appear that I could form the LLC in a low-cost state(avoiding the annual CA franchise fee because no business id being transacted) until it gets funded through the trust and then convert it to a CA LLC once it actually starts managing the properties. What do you think?

    reply
    • Matt Horwitz January 30, 2020

      Hi Robb, interesting scenario. You could form an LLC in another state and then file Articles of Organization – Conversion (Form LLC-1A) to “domesticate” the LLC into California. You’d also need to dissolve the LLC in the original state. However, you may want to run all this by an estate planning attorney. Maybe there is a simpler setup. For example, as maybe it’s possible to draft language in the trust to make the beneficiary a to-be-formed LLC. So once the trustor passes, you can then form the LLC in CA, and change title, if that’s what the trust entails. If you’re able to do this, it’ll save you the cost of forming the LLC in a non-California state, the conversion/domestication filing, Registered Agent fees in the non-CA state (if applicable), and any annual requirements in the non-CA state (if applicable). Just an idea to explore. Hope that helps.

      reply
  19. Yvonne January 29, 2020

    My current domicile is CT, and I’m nomadic so I can in essence establish domicile in any state. What advice do you have? Is there a state that is ideal to both establish domicile and a LLC? I know CT is one of the most expensive states in every way now! I have an online coaching business and I’m the only owner/employee.

    reply
    • Matt Horwitz January 31, 2020

      Hi Yvonne, I hear you on the flexibility of being nomadic. If you are looking to change your state of residency, and that can be to anywhere, and you’re looking to save money, then that conversation is best had with an accountant (or a few). There are many things to consider. Here are some common tax/cost considerations:

      • cost of living
      • real estate taxes
      • LLC annual requirements
      • inheritance and estate tax
      • homestead exemption amount
      • cost of travel to and from
      • cost of education (for yourself and/or children)
      • state personal income tax
      • state business income tax

      A note about state business income tax: This is usually not applicable to an LLC taxed in its default status (Single-Member LLC taxed as a Disregarded Entity/Sole Proprietorship and Multi-Member LLC taxed as a Partnership or Qualified Joint Venture). It usually only applies to LLCs taxed as C-Corporations (not very common) and in some states, LLCs taxed as S-Corporations, something to look into once an LLC begins to net $80k-$100k or more per year (depending on the number of Members; the more Members, the higher the net profit needs to be in order for an S-Corporation tax election to make sense).

      For people on the east coast, Florida is a decent state to look into for residency as there’s no state personal income tax. Florida also has a homestead exemption with an unlimited amount. Florida LLCs are $125 to form and then ~$140 per year. I’m biased though and personally like Florida. Here are states with no state personal income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee don’t tax earned income, but they do tax investment income. However, Tennessee will become the 8th no state personal income tax state once the “Hall tax” is phased out in 2022, so there’s that. But many of these states have other types of taxes that may affect businesses. Taxes… which is a big category people look into to save money… there are many different types of taxes and it varies a lot person to person and and business to business. Having said all that, a lot of it could be overkill for a business getting started and looking to find product-market-fit/market validation. But if you’re nomadic and it’s already on your list, you could save a good amount of money by changing your state of residency.

      On another note, as an FYI, the owner of a Single-Member LLC (taxed in its default status) can’t be an employee. You are just the owner. Yes, you work in the business, but you work in the business as the owner, not an employee. The exception to that rule would be if you elect to have your LLC taxed as a C-Corporation and become a W-2 employee or have your LLC taxed as an S-Corporation where you have to become a W-2 employee-owner.

      For those reading this that are considering changing your state of residency to save money on taxes, our best piece of advice is this: actually move to the new state and reside there… especially if you are moving from a state that is notorious for auditing people on the way out (California, Connecticut, Illinois, Massachusetts, New Jersey, and New York). Furthermore, you are at a higher risk of a state tax audit if you’re a high-income earner (high 6-figures, 7-figures+), move from a high tax state to a low/no income tax state, and/or you move shortly before selling assets.

      A great way to think about changing residency and establishing domicile, is to picture yourself in an audit or tax court. How would you answer the following questions:

      • Where is your bank account?
      • 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 do you own homes?
      • Where do you pay rent?
      • Where are your pets?
      • Where is your veterinarian?
      • What states were you in for more than 183 days?
      • Where is your driver’s license?
      • Where do you file a state tax return?
      • If you have other licenses/permits, where are they held?
      • Where are you registered to vote?
      • Where is your doctor?
      • Where is your dentist?
      • Where is your safe deposit box?
      • Where do you receive most of your mail?
      • Where are financial statement 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)

      Hopefully most of the answers to those questions should point to the new state. It’s also important to have legitimate records and documentation that prove those answers. Hope that helps.

      reply
      • Yvonne February 15, 2020

        I can’t thank you enough for this insight, Matt. I feel much more educated on the subject thanks to you!

        reply
  20. Michael February 4, 2020

    I have rental property in California and an LLC in California. I live in Washington state. Would it be to any advantage to create an umbrella LLC in Washington in which to place the CA LLC? I’m thinking that in the future I may purchase property in Washington.
    Your valuable insight is appreciated.

    reply
    • Matt Horwitz February 5, 2020

      Hi Michael, I actually sent you an email as I had a few followup questions. Did you receive it? Our system shows it was delivered, but not opened yet.

      reply
      • Michael February 8, 2020

        Hi Matt, I apologize for not getting back sooner. To refresh our memories here is my original question with a bit more info. I have rental properties in California under an LLC in CA. However I live in Washington state. Would there be any advantage or reason for me to have a “parent” LLC in WA putting the CA LLC as “child”? The reason I ask is that I was told that if the child LLC is the operating LLC and the “parent” LLC the managing LLC. This way if the “child” LLC is sued your assets would be better protected. If I lost the lawsuit only the operating assets would be vulnerable but the operating LLC would not own any thing. Any truth in that? And by setting up the managing LLC in WA I figure I could avoid at least one of the yearly $800 CA LLC “taxes”. WA LLC “taxes”, I think, are about $200 a year. This make any sense?

        reply
        • Matt Horwitz February 15, 2020

          Hi Michael, you mentioned that in the future you may purchase property in Washington. If that property were placed in your Washington LLC, then the “managing LLC” would own assets. Unless you were intending to open another Washington LLC in the future for future property purchases. Sometimes, placing an LLC “inside” another LLC (parent/child LLC relationship) can strengthen your asset protection by limiting the remedies of creditors, however, it’s a bit complicated and there isn’t a black and white answer in a scenario like this. We recommend speaking with an asset protection attorney (or a few) to look at all the different setups and the pros and the cons. In these situations, there are a multitude of ways things can be structured. Thank you for your understanding and hope that helps a bit.

          reply
          • Michael February 16, 2020

            Thanks, Matt. Your info helped me get a better handle on what to do. Great site.

            reply
            • Matt Horwitz February 17, 2020

              Thanks Michael! You’re very welcome :)

              reply
  21. Lauren February 5, 2020

    First off, thanks so much for all this helpful info!
    I’ve been following along your guide to forming an LLC in New York, as that’s where I currently live, and where most of my clients live. (I’m a florist, work from home, do events mostly in New York, and have an e-commerce store and ship globally.) However, I’ll be moving to Connecticut in a few months. I’m at the step where I’m applying for an EIN number. Should I continue to set up my LLC in New York? Or should I call my progress (and money spent) thus far a wash, and start over once I move to CT?

    reply
    • Matt Horwitz February 5, 2020

      Hey Lauren, you’re very welcome! Is your move to Connecticut something you think will last many years or is there a chance you’ll move back to New York? Will you business activities eventually move over to Connecticut or will you stay relatively close to New York and do business in both states?

      reply
    • Lauren February 6, 2020

      We’re moving just over the border into CT, and will continue working in NY (both for my LLC and my other salary job). CT will be my home office for my e-store, but the services I provide will be in NY. I expect we’ll be in CT for at least 5 years, probably more.

      reply
      • Matt Horwitz February 15, 2020

        Hi Lauren, it sounds like your LLC will be transacting business in both states. It may be easiest to register your New York LLC as a foreign LLC in Connecticut. Hope that helps.

        reply
  22. Cole February 6, 2020

    Hi Matt,
    Your website has been so helpful, thank you so much! I live overseas so my understanding is that I can register my LLC in any state. I registered in New Mexico since there is no annual fees or reports, and since I do not have New Mexico sourced income, I would not need to file a tax return there either, correct?

    I know New Mexico starting doing a gross receipts tax on services, however since I am not physically there nor are my clients I believe I would be exempt. Can you confirm that I would only file a federal tax return and no state tax return is required? I just want to make sure I am not missing anything as this will be my first time filing. Thanks so much, I appreciate your help!

    reply
    • Matt Horwitz February 15, 2020

      Hi Cole, thanks so much! We’re not able to comment on specific tax situations as things vary far too greatly and depend and multiple factors. We recommend speaking with an accountant to confirm. Thank you for your understanding.

      reply
  23. Martin February 7, 2020

    What does it mean when they say that New Mexico and Wyoming protect an LLC’s privacy? What other states do?

    reply
    • Matt Horwitz February 15, 2020

      Hi Martin, it usually means that the names of the LLC Members are not required to be listed on the Articles of Organization (or Certificate of Organization or Certificate of Formation). Each state’s formation document (and Annual Report document) needs to be examined carefully (we recommend printing them out and test-filling them out and/or going through a states’ online filing). You need to see if Members (or Managers) need to be listed, which addresses are required, and how the forms are signed (if you’re signing them because you are filing yourself… as opposed to hiring someone to file for you; it’s usually better to hire someone if you don’t want information about yourself listed). And if an LLC is formed in a “private” state, but your LLC is transacting in your home state (a very common situation) or another state, you’ll be required to register your “private” LLC as a foreign LLC in the state(s) where it is transacting business. So then you’ll need to look at that state’s foreign LLC filing forms (and annual report form) to see what information is required… since that can sometimes “bust” your privacy. Basically, it’s not a quick and short answer (unlike some sites may lead you to believe). Additionally, you need to decide which person (and which address) will be used for the Registered Agent and for the LLC Organizer (in multiple states; if applicable). While most people can fill these roles themselves, they may not want to if they don’t want their name or address anywhere on the LLC’s public forms/annual reports. Additionally, how an LLC is managed, may affect what information is required. We don’t have a list of all private states published at this time, but it is on our to do list. Thank you for your understanding and hope that helps.

      reply
  24. Sean February 10, 2020

    Current Background:

    I am an American citizen that is in the process of opening a Multi-Member LLC with two members that are non-citizens of the US. They reside outside of the country and as I am the only one within the US, it has become a question as to whether opening an LLC in Delaware would provide benefits that outweigh that of if I registered the LLC in my home state of Minnesota. I operate between the US and Canada with my primary residence being that in Minnesota. As all business will be digitally based, what recommendations would you make in approaching this? Would it be best to register in my home state, or would it actually have benefits for myself and the others involved to open an LLC in Delaware or another state?

    reply
    • Matt Horwitz February 15, 2020

      Hi Sean, if you form a Delaware LLC, but you are transacting business in Minnesota, you should register that Delaware LLC as a foreign LLC in Minnesota. In the event of a lawsuit, there are multiple factors taken into consideration to determine where a case will be heard. Unfortunately, it’s not a simple black and white answer. So you may not get the supposed “Delaware benefits”. Having said that, forming a Delaware LLC that owns a Minnesota LLC could offer more asset protection (specifically strengthening the remedies of creditors; even though a Multi-Member LLC in Minnesota does offer good protection), but it’s something best discussed with an asset protection attorney in Minnesota. Redden Law PLLC out of Minnetonka has written about some of the changes to the Minnesota LLC Act and they apply to creditors’ remedies. Hope that helps.

      reply
  25. Sandro Gamonal February 19, 2020

    Good evening Mr. Horwitz

    I am non-US citizen and non-US resident. I am Peruvian and I live in Peru. But I want to do business online. The business consists of buying products from US distributors and reselling products in the USA, specifically by Amazon. The purchase and sale is made entirely online. Do you recommend me create an LLC? If I have to do it, Can I do it in any state?

    Thank you for your help.

    Sincerely,

    Sandro Gamonal

    reply

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