Why You Shouldn't Form an LLC in Delaware

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6 Reasons Why You Shouldn’t Form an LLC in Delaware


Video Transcript:

Hey folks, Matt Horwitz, LLCUniversity.com. Six reasons why you should not form an LLC in Delaware. I just got finished writing this and figured it would be an excellent piece to make a video on, and we get so many phone calls. This is such a pain point for so many people, and they make a lot of mistakes here. Note if you live in Delaware or you do business in Delaware, this information does not apply to you, you should form an LLC in Delaware. If you don’t live in Delaware and you don’t do business in Delaware, and you’ve heard that you should form an LLC in this magical state, let me save you a lot of money and headaches. Don’t form an LLC in Delaware. The disadvantages of forming an LLC in Delaware far outweigh the perceived advantages. Let’s look at an example. Nathan is from Connecticut. He reads online that Delaware is the best state to form an LLC in, so he forms an LLC in Delaware. He’s a resident of Connecticut, he already pays taxes in Connecticut, and his home office is based in Connecticut. Most people aren’t aware of, but there’s a lot of issues with this setup, illegally transacting business without authority. Nathan’s Delaware LLC is doing business illegally in Connecticut. The Connecticut secretary of state is going to enforce it’s laws and will soon be sending Nathan a citation in the mail with a fine, so he needs to register as a Foreign LLC. To remedy the citation and because it’s the law, Nathan must now- It’s hard to read your own writing. Nathan must now register his Delaware LLC as a Foreign LLC in Connecticut. He needs to file a Connecticut Foreign LLC registration, pay the state filing fee, which is $120 in Connecticut, it’s a lot more expensive in other states. Then he must keep this Foreign LLC in compliance with Connecticut law. That means filing an annual report every year and paying that fee, as well as paying a Connecticut business entity tax of $250 every other year. Remember, this is already on top of him paying the $90 registration fee in Delaware, the $300 required annual franchise tax in Delaware, and $125 every year for his Delaware registered agent. In short, Nathan now needs to maintain two LLCs. He has a Domestic LLC in Delaware and a Foreign LLC in Connecticut, and it gets worse. Nathan was deceived into forming a Delaware LLC because he read it was a tax friendly state, and while this is true, it really only applies to large, multi-million dollar companies and not small business LLCs. Look, don’t just take our word for it. Read what the Delaware secretary of state has to say about the hype … I guess you can’t click the link, but the link is below the video. Most people are unaware of this simple fact, taxes are paid where the money is made, not where your LLC is set up. That means Nathan still owes Connecticut taxes, which could include but aren’t limited to sales and use tax, business entity tax, withholding tax, corporate business tax, net income tax, franchise tax, property tax, and more. Remember, Nathan’s a resident of Connecticut and an LLC is a pass through entity, which means the profits of the LLC are reported on his federal income tax return, as well as his Connecticut personal income tax return. In short, the whole reason that he formed the Delaware LLC in the first place is defeated. It’s not saving him any money on taxes. In fact, this whole loophole is unknowingly costing him a lot more money. What about the Delaware Court of Chancery and Delaware Law? I’m sure you’ve read online something about these. The Delaware Court of Chancery is the oldest and most established business court in America, and Delaware has the most robust business case law. Who cares? What are you starting, some lawsuit rampant company where you’re going to go to court every other month? Look, take your reality check. Not that this information is not true, it just doesn’t apply to you. Again, take a reality check. Most of the companies promoting Delaware, they don’t give a crap about your business’s long term success and well being, and all the headaches that you’re going to have to deal with. They just want your money. Don’t be misled into the headaches. Focus your energy on running a legitimate and successful company in the state where you actually live and do business in. Whew… alright, I get a little angry here. Other industry related issues. Again, we get painful phone calls from our readers about these issues. Recently, a guy from Pennsylvania running a trucking company in Pennsylvania formed an LLC in Delaware. Later, he tried to register his trucks as being in Delaware with the department of transportation. They denied his application because he was not a resident of Delaware, and that ended up costing him $20,000 of business that month. I’m not going to list out dozens and dozens of examples here, but I just want to let you know. This information, you’re not going to find on websites promoting Delaware, and you’re probably going to hit industry specific quirks where you’re going to have issues with your out of state LLC. All right, take away. Instead of forming an LLC out of state and then later learning that you need to register your out of state LLC as a Foreign LLC in your home state, paying for an extra registered agent, paying annual reports in two states, having tax liabilities potentially in two states, and dealing with the headaches of two LLCs, just form the LLC in the home state and the state where you’re doing business. If you’d like more information on this whole topic, we have another video, link below. Here’s an excuse I hear, “But I work online!” Even if you run a business from home or online, you’re still a resident of your home state and you’re still transacting business in that state. You can’t get around your state’s tax obligations simply by forming an LLC out of state. If you really want to, you’ve got to move. Again, put your time and energy into building a successful company, not wasting your time on a handful of loopholes you’ve read on the internet. Again, if you live in Delaware or you do business in Delaware, just please disregard this, form an LLC in Delaware. If not, form your LLC in your home state and/or the state where you’re transacting business. Hope this information is helpful. Take care.

Note: If you live in Delaware, or do business in the state, then this information does not apply to you. You should form an LLC in Delaware.

If you don’t live in, or do business in Delaware, and you’ve heard that you should form an LLC in Delaware, let me save you a lot of money and headaches: you should not form an LLC in Delaware.

The disadvantages of forming an LLC in Delaware far outweigh any “advantages” you may have read.

Let’s look at an example:
• Nathan is from Connecticut
• He read online “Delaware is the best state to form an LLC”
• He forms an LLC in Delaware
• He is a resident of Connecticut
• He already pays taxes in Connecticut
• His home office is in Connecticut

Most people are unaware, but there are a handful of issues with this setup…

Illegally Transacting Business Without Authority

Nathan’s DE LLC is doing business illegally in CT. The CT Secretary of State enforces its laws and will soon be sending Nathan a citation and a fine in the mail.

Needing to Register a Foreign LLC

To remedy the above citation (and because it’s the law), Nathan must now register his DE LLC as a “Foreign LLC” in CT.

He first needs to file a Connecticut Foreign LLC Registration and pay the state filing fee ($120). He must then keep his Foreign LLC in compliance with CT law. That means filing a Connecticut Annual Report every year ($20), as well as paying the Business Entity Tax ($250) every other year.

Remember, this is on top of already paying the $90 filing fee in Delaware, the $300 required Annual Franchise Tax in Delaware, and the $125 annual fee for his DE Registered Agent.

In short, Nathan now needs to maintain 2 LLCs. A “Domestic LLC” in Delaware and a “Foreign LLC” in his home state of Connecticut.

It gets worse…

Taxes Are Paid Where Money is Made

Nathan was deceived into forming an LLC in Delaware because he read it was a “tax-friendly state”.

And while this is true, it really only applies to large, multi-million dollar Corporations, not small business LLCs.

And don’t just take our word for it. Read what the Delaware Secretary of State has to say about the hype: http://corplaw.delaware.gov/facts-and-myths/

Most people are unaware of this one simple fact: taxes are paid where the money is made.

That means Nathan still owes Connecticut taxes, which could include (but are not limited to) sales and use tax, business entity tax, withholding tax, corporate business tax, net income tax, surtax, franchise tax, property tax, and more.

And remember, Nathan is a resident of Connecticut. And an LLC is a pass-through entity. Which means the profits from his LLC are reported on his federal income tax return, as well as his Connecticut personal income tax return.

In short, the whole reason he formed the DE LLC is defeated. It’s not saving him any money on taxes. In fact, this whole “loophole” is unknowingly costing him a lot more money.

But What About the Delaware Court of Chancery and Delaware Law?

I’m sure you’ve read something along these lines: “The Delaware Court of Chancery is the oldest and most established business court in America,” and “Delaware has the most robust business case law.”

Who cares!

What are you starting: some lawsuit-rampant company where you’re going to court every other month?

Take a reality check. Most of these companies promoting Delaware don’t give a crap about your business’s long-term success and well-being. They just want your money.

Don’t be misled into the headaches. Focus your energy on running a legitimate and successful company in the state where you actually live and do business.

Other Industry-Related Issues

We get painful phone calls from many of our readers about these issues. Recently a man from Pennsylvania who runs a trucking company (in PA) formed an LLC in Delaware.

Later, when he tried to register his trucks with the Department of Transportation, they denied his application because he was not a resident of Delaware. This ended up costing him over $20,000 in business that month.

Instead of listing out dozens of other examples, we just want to warn you that you’ll likely hit industry-specific “quirks” with LLCs registered outside the state where you reside and/or actually do business.

Takeaway

Instead of:

– forming an LLC out-of-state and then later learning that you need to register your out-of-state LLC as a Foreign LLC in your home state,

– paying for an extra Registered Agent,

– paying annual reports in 2 states,

– having tax liabilities in 2 states,

– and dealing with the headaches of maintaining 2 LLCs,

just form your LLC in your home state, or the state where you are doing business. If you’d like more information on why it’s best to form an LLC in your home state, please see this video.

“But I Work Online!”

Even if you run an online business from home, you are still a resident of your home state and you are still transacting business in that state. You cannot get around your state’s tax obligations simply by forming an LLC out-of-state.

Put your time and energy into building a successful company, not wasting your time on a handful of “loopholes” you read on the internet.

If you live in, or do business in Delaware

Then this article does not apply to your situation. You should form your LLC in Delaware. Get step-by-step instructions on how to do that here: How to Form an LLC in Delaware.

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Matt Horwitz
Founder & Educator at 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! We teach people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your entrepreneurial journey.

120 Comments

  1. Luis Rocha Flores September 22, 2017

    Hello, can you help me please?

    This is my case, I’ve an enterprise of car rental by an app, we take the car wherever you want, my service are a digital service, now I’m in 8 points of mexico and I’ve 1000 cars, in our plans we have to open Los Angeles. We’re thinking to open the llc in Delaware for the fiscal benefits, if my service are digital you think that is a good idea to open there my llc ?

    Thank you for the attention

    reply
    • Matt Horwitz September 22, 2017

      Hi Luis, since you are not a US resident or citizen, you can form the LLC in any state. If you were to form the LLC in DE, you’ll need to register in California since that is where you’re doing business. There are likely also tax details which you’ll need to look into, that I’m not aware about due to your situation. I recommend you speak with an accountants and an attorney to be safe.

      reply
  2. Agus Halim October 9, 2017

    Hi, i’m non US person currently stay in singapore, and i would like to form LLC in US. at the first thought LLC in delaware is good for me to start. but after your useful article it starting make sense $300 for the registered agent fee.
    can help to advise me since now i dont know what is the direction right now. if i’m selling online buy and sell from other company/retailer and sell it using online by using marketplace like amazon. what is the best situation in which state i should form the LLC?
    other company can help to exampt the sales tax and i must include the reseller certificate. can help to advise me on this?
    if need attorney can recommend me as well? thanks in advanced.
    Agus

    reply
    • Matt Horwitz October 10, 2017

      Hi Agus, Delaware and Wyoming are common for foreigner-owned online businesses. You can choose any state you want actually. Also consider if you’re going to fly to the US to open an LLC bank account. You may want to choose a state that’s easier to fly to. We don’t have any recommendations at this point for sales tax/reseller certificate. If you need to talk to an attorney, I recommend using Avvo. Hope that helps.

      reply
  3. Freddie November 9, 2017

    Matt,

    Thinks for your video. I am thinking of stating an LLC for importing finished food products into the US and I am a US citizen. I am from California but currently reside in Florida. I will be in Florida for another year before moving back to California. I plan to start importing the products into Florida, but later into California when I relocate in about 12 to 14 months. Would it be wise to open an LLC in both states? Or just Florida since it is where I currently reside and where I would initially start importing/ Thanks for the assistance.

    reply
    • Matt Horwitz November 13, 2017

      Hey Freddie, in this case you’ll be doing business in both states. You could first form an LLC in Florida (a domestic LLC), then later, register that Florida LLC to do business in California as what’s known as a Foreign LLC registration. This legally allows your Florida LLC to operate in the state of CA. All in all though, it’s still just one LLC. Hope that helps!

      reply
  4. Carlos November 12, 2017

    Hi Matt. Thank you very much for this informative post, it’s like you were reading my mind, glad that I came across this information.

    Just one question, perhaps you can advise. I work in eCommerce and like many, I have opened my LLC in Delaware. I currently live in Romania and mostly work online selling retail products via Shopify.

    My question is simple, since my store receives purchases from all over USA, should I charge taxes for each state except the one my LLC is from?

    Hope you understand my question. Thank you!

    reply
    • Matt Horwitz November 13, 2017

      Carlos, I love your comment. So happy to hear I was addressing your concerns/questions as they arose. Regarding sales tax, I’m not 100% sure and taxes are not my “strong suit” (yet). I recommend trying our “knights of the roundtable” strategy in order to get to the bottom of it. Apologies I couldn’t assist you further.

      reply
    • Nauman October 5, 2018

      Hey Carlos,

      Same, I dont live in USA and I formed an llc in delaware.
      I sell productson ebay and etsy and they’re sold in all over the US.

      What are the taxes obligations and what have you found so far about the taxes?

      Let’s connect. I’ll be highly obliged to have helped on this matter. Since, I’m just starting up.

      Thanks

      reply
      • Matt Horwitz October 25, 2018

        Hey Nauman, you’ll likely need to collect sales tax and file a return with the IRS. Whether or not it’s just an informational return or you also have to pay taxes will depend on the details of your business, your country’s tax treaty with the US, and other details specific to your situation. We recommend working with an accountant that specializes in non-US resident taxes. Hope that’s helpful. And yes, Carlos, if you have any updates, please feel free to share :) Thanks.

        reply
  5. Rosemary December 4, 2017

    Hello! Thanks for your post. I am a life coach working online and with people all over the globe… I have talked to a few other coaches who do the same type of work and they are saving money having their LLC in Deleware. Can you please tell me how it’s possible for them to be doing this and why you still don’t recommend it, especially since they are doing and saving money? I am currently living in MA but am moving to NYC Spring 2018 and will be legitimizing my business sometime between the new year and my move. Thanks!

    reply
    • Matt Horwitz December 12, 2017

      Hi Rosemary, thanks for the great question. Can you elaborate on what you mean by the other coaches saving money? The answer comes down to the legal definition of “doing business” in the state where you are actually doing business. We’ll need to update this page with more context, but the best way to think about it is this… it’s not about where your customers/clients are located… it’s about where you run/operate/manage the business FROM. In your case, if you’re moving to New York (and especially if you’ll be claiming residency there), then that’s the state where you’ll be legally doing business. Yes, you could form an LLC in Delaware, but you could also be fined and requested to register your Delaware LLC as a Foreign LLC in New York… this will certainly be more expensive. So although cheaper states may seem cheaper on the onset, they could end up being more expensive, and worse, a much larger headache. Also, if your LLC isn’t registered in New York (and you’re doing business there), you don’t have the rights to file a suit in the state. Hope that helps some. Let me know if you have any followup questions.

      reply
  6. Darryl Johne December 21, 2017

    Hello Matt. I am looking to start my business while currently working for my firm. We do lending services across the country and I am interested on starting my own firm. I work in NYC, live in NJ. However, I have been leaning on registering in Delaware. What’s your take on this situation? I am also starting it with a very small budget, and with all the said “benefits” that come with DE business license, I want someone to throw a rock on me and give me guidance.

    Thank you for your article! It really opens up more options! Happy holidays!

    reply
    • Matt Horwitz December 22, 2017

      Hey Darryl, do you have a state license? If so, is it from New York or New Jersey? And where would you primarily be working from running this business?

      reply
      • Darryl Johne December 24, 2017

        Hello Matt Happy Holidays! I have a license in NJ. And I might run the business in NYC.

        reply
        • Matt Horwitz December 24, 2017

          Hey Darryl, I’d then consider forming the LLC where you will be operating the business, either in New York or New Jersey. You could also consider forming the LLC in Delaware and then registering as a Foreign LLC in either NY or NJ. Hope that helps. And Happy Holidays!

          reply
          • Darryl Johne December 26, 2017

            Will i be taxed in 3 states if i went with the latter option?

            reply
            • Matt Horwitz December 26, 2017

              Hi Darryl, you’ll likely pay the taxes where the money is made, but we cannot offer information on taxes as things vary widely. I recommend using our “knights of the roundtable” strategy and phoning a few accountants for the best answer unique to your situation. Link here. I’d love to hear what you find out, so feel free to keep me posted.

              reply
              • Darryl Johne December 28, 2017

                Thanks Matt! You helped me a lot! I will keep you posted on what I find.

                reply
                • Matt Horwitz December 29, 2017

                  You’re welcome Darryl. And sounds great, thank you!

                  reply
  7. Brittany January 22, 2018

    Hello! I am a US citizen who does not live in the US and I want to form an LLC for my e-commerce business this year. Is it okay for me to choose any state? I have been looking into Delaware or Wyoming mostly. Do you have to pay state income tax if you own a business in that state? I’m wondering if it’s better to form the LLC in a state with low fees that does not collect sales tax or a state that has no income tax if I would have to file a non resident return. Thanks!

    reply
    • Matt Horwitz January 22, 2018

      Hi Britany, we’re unable to provide information regarding taxes as it varies far too widely. I recommend using our “knights of the roundtable” strategy (see here) and calling a few accountants to review all your options. Hope that helps.

      reply
      • Brittany January 23, 2018

        Ok, thanks Matt!

        reply
  8. Stavroula February 3, 2018

    Hi Matt,
    I am Stavroula from Greece.
    I have a professional Amazon account and I registered as individual.
    I want to form a LLC for my e-commerce business this year.
    I would like your advice to form a LLC in Delaware.
    Thank you in advance.

    reply
    • Matt Horwitz February 9, 2018

      Hi Stavroula, Delaware is a great state for foreigners setting up Amazon business. We also see a lot of foreigners setting up LLCs in Wyoming for ecommerce/Amazon FBA businesses.

      reply
      • Pippa July 6, 2018

        How about if it’s a US citizen living abroad wanting to do the same thing (as in opening up an amazon business online). My family is in NJ and I have the business as a sole operator based there. Should I form the llc in NJ or just do Delaware?
        Thank you

        reply
        • Matt Horwitz August 12, 2018

          Hi Pippa, it’ll likely be easiest to choose the state where you’re likely to return to after your travels (if applicable). It’ll also be cheaper to form a New Jersey LLC since you can serve as your Registered Agent (or family) and the annual fee is less. Hope that helps.

          reply
  9. Igor Uzelac February 16, 2018

    Hello Mr. Horwitz,
    I’m not US citizen nor living in the states.
    I have opened or. forrmed (through an agency) LLC in Delawere back in 2006 just so it can be the owner of a company (doo) in my country :-)
    In those 12 years neither the LLC nor the DOO didn’t do any revenue (It was for a project that later unfortunatlly wasn’t realized)
    My question is where can I check if the LLC is still in exsistence, because if it doesn’t than there is no “legal” owner of the DOO which could become an interesting problem in my country :-) esspecially if now I want to start work through this DOO. Thank you for your kind answer and help
    Best regards
    Igor

    reply
    • Matt Horwitz February 21, 2018

      Hey Igor, the easiest thing to do is contact the Delaware Division of Corporations and ask them. Hope that helps.

      reply
      • Igor February 21, 2018

        Hi Matt, Thank you for your answer :-) Best regards Igor

        reply
  10. Gilor February 18, 2018

    Hi
    What if I am not a resident of the United States at all?
    I am an Amazon seller, where do you recommend to open the LLC and why.
    Thanks

    reply
    • Matt Horwitz February 21, 2018

      Hi Gilor, will you be doing business physically in any US state? Such as having an office or having employees? If not, then we see most non-US residents choosing Wyoming or Delaware. Hope that helps.

      reply
  11. Fish February 26, 2018

    Hi there,
    I am opening a vacation rental business. We are located in Mexico and all of our properties are located in Mexico. Our renters are international but mostly are American, Mexicans and Canadians. My goal is to setup a pass through account in US to have better financial tools. Most of the payments I invoice for go directly to the owners of the properties (mostly are American, Mexicans and Canadiansas well) and we keep a commission ( between 15 and 25%). Can I use this passthrough account simply as a tool to process payments and not have to pay taxes in the USA? ( Mexican merchant accounts are expensive, slow and scrutinized). Or can I send my gross profit to Mexico as Intellectual Property payment?
    Thanks

    reply
    • Matt Horwitz February 27, 2018

      Hey Fish, I wish I knew the answer to this one, but I’m not sure as we don’t provide information and research on finances and taxes, especially when dealing between two countries. I recommend speaking with a few attorneys and accountants for more information. Feel free to keep us updated if you’d like. I’m curious to hear what you come up with.

      reply
      • Fish February 27, 2018

        Matt thanks for the quick reply, I will follow your advice and let you know what we find.

        reply
        • Matt Horwitz February 27, 2018

          Sounds great, thanks Fish!

          reply
        • Alex H July 14, 2018

          Hello Matt and hello Fish,

          I would be very interested to hear what you ended up doing. We operate under a similar business model. We are Limousine reservation website from outside the US but with US customers and transportation partners in the US. We operate as middlemen and we take a commission. We don’t execute the service and our office is not physically located in the US.

          Matt:

          1- we are planning to open the LLC in Delaware. Would you advise against that? Our founder is a US citizen but resident outside the US.

          2- Do we have to collect sales tax when we take payments from the customers?

          Thanks for your help, your website is a life saver!

          Alex

          reply
          • Matt Horwitz August 12, 2018

            Hey Alex, you’re welcome! We’re not 100% sure on this situation, but it seems a Delaware LLC could work. We don’t get into the weeks regarding sales tax, so that question would need to be posed to an accountant. Thanks for your understanding.

            reply
  12. Sal February 28, 2018

    Hi Matt, I’m trying to form an LLC with two partners, 2 of us have ssn but 1 is a foreigner, Our business is in Kansas, would you recommend us to register in Kansas or Delaware. Thanks in advance!

    reply
    • Matt Horwitz March 2, 2018

      Hi Sal, if you’re doing business in Kansas, you should be forming the LLC in Kansas. Whether or not the LLC Members have an SSN doesn’t matter for the state you choose. I also recommend reading the following: best state for LLC. Hope that helps.

      reply
  13. James March 6, 2018

    I live in CA and will be doing SEO work and affiliate marketing online. My clients will be from people living in various states. I work out of my home.
    I’m trying to figure out which state it’s best to file my LLC and was looking at Nevada (they don’t have state income tax there).
    If I file a LLC in Nevada, will I also have to file a foreign LLC in California and pay fees in both states?

    I think the confusion is the fact that I’m working online and I want to be able to assist clients within all of the 50 states.

    Do you also help people file LLCs?

    Any additional information besides the answers to my question would be appreciated.

    Thanks in advance.

    reply
    • Matt Horwitz March 10, 2018

      Hi James, although you work online, you’re still legally “doing business” in California. California is extremely strict about doing business in their state, imposing annual franchise tax, and coming after you (fees, penalties, back payments, etc.) if you form an LLC in another state but don’t register as a Foreign LLC in California and pay the state. I recommend reading what is doing business in California. In your case, it doesn’t really matter where your clients are located… it’s where you’re working from that will determine the jurisdiction in which you should form your LLC. So yes, if you formed an LLC in Nevada, you’d have to register as a Foreign LLC in California, and it’ll defeat the whole purpose and cost you a lot more. Simple answer is that if you live in California, you should form an LLC in California or register as a Foreign LLC in California. Hope that helps.

      reply
  14. Katherine March 19, 2018

    Hi Matt!
    Your information is very helpfull, thanks for your work.
    Can you help me? I am outside US and I work online as a developer, I’d like to open LLC in Delaware for non-resident, I am planning hire registration agent, which ones would you recommend? And else how much it can be cost including all taxes? And what about rent office, what should I do if I don’t need it?
    Thanks a lot!

    reply
    • Matt Horwitz March 27, 2018

      Hi Katherine, you’re not required to rent an office in Delaware. We cannot tell you about taxes as this varies a lot, especially for non-US residents. Regarding the Registered Agent services in Delaware, we have recommendations on this page: Delaware Registered Agent. Hope that helps!

      reply
  15. Marilisa April 2, 2018

    I’m looking to dissolve my LLC. Let me explain the situation:
    I opened the llc to start a business with a family member (solely in my name) and things went south fast. Meaning I never conducted any business at all. I am pretty ignorant to the ways of Delaware and I’m also not to sure what I should be filing to claim losses and hopefully not have to pay the irs too much. Being that I never received income and all I did was pay out money, is there a cut and dry way to clear this all up? Thank you ahead of time.

    Regards
    Marilisa

    reply
    • Matt Horwitz April 3, 2018

      Hey Marilisa, if you want to dissolve your Delaware LLC, you’ll need to get clearance from the Delaware Franchise Tax Section then file a Certificate of Cancellation. You can follow our Delaware LLC Dissolution guide. Then I recommend speaking with an accountant regarding your federal, state, and local returns. Hope that helps.

      reply
  16. Michael April 7, 2018

    Hi Matt,

    I currently own three restaurants in New York all under separate LLC’s, I am planning on opening new locations in Maryland and Georgia and having all the LLC’s owned by one LLC holding company, in this case which state is it best to register the holding company LLC in?

    Best,

    Michael

    reply
    • Matt Horwitz April 8, 2018

      Hi Michael, there isn’t a simple answer to the best state for a holding company in your situation. We recommend speaking with a few lawyers to find the best course of action. Thanks for your understanding.

      reply
  17. Grace April 23, 2018

    Hi Matt,
    Can I form online llc where I don’t live, I’m a student,I live in turkey and I can’t afford the price here. I want to form it online for cheap using another country, can I do that?

    reply
    • Matt Horwitz April 27, 2018

      Hi Grace, yes, you certainly can. There are no residency or citizenship requirements when forming an LLC in the USA. And in most state, you can do it all online. They only “local” thing you’ll need is a Registered Agent and an LLC bank account. The Registered Agent can be hired online though. However, in order to open an LLC bank account, you’ll need to visit the bank in person, and it’ll need to be a bank that is located in the state where you form the LLC. Hope that helps.

      reply
  18. Jen May 1, 2018

    Hi,
    I am planning on opening an LLC. I currently live in PA but planning on moving to Delaware at the end of the year. Would you recommend that I form the LLC in Delaware? Then file for a foreign LLC in PA until I move?

    reply
    • Matt Horwitz May 2, 2018

      Hi Jenny, yes, this is the route we recommend. When needed, you’ll then file a Statement of Withdrawal of Foreign Registration (DSCB:15-415/417) with the PA Bureau of Corporations to cease the LLC’s activities in PA. Hope that helps.

      reply
  19. Amy May 2, 2018

    Hi-
    my husband and I formed an LLC in 2016 but we never did any business in it. We forgot the whole thing.

    Recently we received tax bill from Delaware. Is there any way we can close the LLC and reduce the tax burden? thanks

    reply
    • Matt Horwitz May 2, 2018

      Hi Amy, you can close the Delaware LLC by dissolving the Delaware LLC. However, that won’t reduce the tax burden. Hope that helps.

      reply
  20. KatoneVi May 3, 2018

    Hope I read this sooner.
    $280 to register for LLC in Deleware
    $50 for registered agent
    =====================
    Decided that since I was going to get double taxed, I should just open business in CA. 5 days after registered LLC in Deleware, called to cancel.
    $200 to file for cancellation
    $5 . for certifieid copy to show that i really did cancel
    $300 for annual flat tax in Delaware
    $0 . for cancelling registered agent within short amount of time.
    $0 . closing the EIN from IRS (no cost yet… just sent the mail today; no fax or email)
    ==============
    $800+ total of cost just to open and cancel within 5 days… Complete waste of money that was + time and energy in doing all documents.

    reply
    • Matt Horwitz May 16, 2018

      WOW! Talk about a costly lesson. Thanks so much for sharing the details. I think this will really help our readers. Glad you got things sorted, although it was expensive.

      reply
  21. Jason Morecraft May 5, 2018

    Hi Matt. I’m hoping you can help me. I had planned to file a Delaware LLC until reading this post. I am currently starting an online marketing consulting agency. I live the majority of the year in Hawaii but spend a couple months in Georgia and 4-5 months overseas. Based on your article I feel like you would recommend filing in Hawaii since this is my home state. I am trying to avoid this because Hawaii has a GE tax. I may take on the occasional Hawaii client but my focus will be all over the US. I have another business in Georgia which is why I spend a couple months there. Would you recommend an LLC in Hawaii or do you think I can start one in Georgia? Thanks in advance.

    reply
    • Matt Horwitz May 16, 2018

      Hi Jason, I understand, however, it all comes down to doing business. And if the State of Hawaii thinks you’re doing business there, you’ll still need to register your LLC there and pay taxes. Having said that though, please run this by your accountant to double-check. Thanks.

      reply
  22. amy hu May 16, 2018

    I opened an LLC by mistake and never used it for anything. what if I continue ignoring the tax bill from Delaware? If they’d dissolve the llc, great! it just too expensive to pay tax and fee to close the llc

    reply
    • Matt Horwitz May 18, 2018

      Hi Amy, after 3 consecutive years of non-payment of the $300 Annual Franchise Tax, the Delaware LLC enters a “cancelled void” status. The tax bill total will be 3 years ($900) plus interest and penalties. The LLC will still remain in existence, so that leaves it open to other potential obligations and debts, however, if no business was ever (or ever will be) done, there shouldn’t be much risk. While it is best to dissolve the DE LLC, if you abandon the LLC instead, the taxes become a debt owed to the State of Delaware against your LLC… not against you as an individual. If you look at section 18-1107(n) (Taxation of Limited Liability Companies), it states LLC Members are not liable for the LLC’s debts. As an FYI, if you ever wanted to use the LLC in the future, you would need to file a Certificate of Revival ($200) and pay the back taxes, interest, and penalties. However, in your case, it would just make more sense to form a new LLC. I’m just writing this bit in case others are in a similar situation. Hope that helps!

      reply
  23. vinnie May 18, 2018

    I’m a US Citizen and planning to start an online software selling and software consulting services business with my foreign partner (who is not in USA). We are going to provide our services in the entire world. I currently live in California. Can you please guide me which is the best business structure to get incorporated and in which state?

    reply
    • Matt Horwitz May 18, 2018

      Hi Vinnie, California has very strict laws regarding doing business, both corporate law, and tax law. So, just by residing in California, you’re likely doing business there. I would recommend forming the LLC in California. You’ll also want to speak with an accountant after the LLC is formed to make sure you and your partner take care of all required tax filings with the California Franchise Tax Board. For LLC versus other entities, please see here: LLC vs Corporation. Hope that helps.

      reply
  24. Wes May 19, 2018

    Hi Matt,

    Great information. My wife & I have an online business and are considering starting an LLC. We have our residence in Florida but we live full-time in Europe. We’re debating whether to open the LLC in Florida or abroad. We would like to do it in Florida in case we move back to the US. But we’re not sure if there are any legal issues operating an online LLC in Florida while living overseas. Would you know anything about this? Thanks in advance.

    reply
    • Matt Horwitz June 17, 2018

      Hi Wes, there are no legal issues with running a Florida LLC from overseas. There are no residency requirements to forming an LLC in the U.S. In your situation, you’ll just want to make sure you’re working with a good accountant and filing properly with the IRS, that’s all. Hope that helps :)

      reply
  25. Imran Agha May 24, 2018

    Hi Matt,
    I live in Bahrain and have company owning few coffee shops here. I want to establish similar coffee business (Roastery and coffee shops) in New York. Shall I incorporate New York company directly under my Bahraini company or set up a new company in Delaware which will own New York. This New York company will be basically an Operative Company. I am not US Citizen.
    Will appreciate your advise. Thanks in advance.

    reply
    • Matt Horwitz June 17, 2018

      Hi Imran, you can do either one. Regarding the pros and cons, that’s too complex for us to get involved with. You’ll need to speak with – and/or hire – a professional who can get into more details with you and discuss the best path forward. Hope that helps and thank you for your understanding.

      reply
  26. Oscar June 21, 2018

    Hi Matt,
    Im an owner operator in the commercial trucking business pulling goods to all 48 states , reside in California, planning to open my own LLC with authority granted by FMCSA, but i dont want to file with California ,
    quite expensive (800$ franchise, and as a owner have to pay twice myself and for LLC income + state, federal ,city ect…)

    You mentioned in your video PA resident and DE LLC got in troubles.
    I want to open in NC but i leave in California if i will use my friend address to file LLC,IRP,FMCSA he leaves in NC , open bank acc in NC…it will be consider as a domestic company or it will be foreign?
    And what exactly the registered agent does can i hire one and use there address for the same purpose ?
    THX

    reply
    • Matt Horwitz July 30, 2018

      Hi Oscar, that would be a domestic North Carolina LLC. Yes, you can hire a Registered Agent like Northwest Registered Agent, which will serve as the LLC’s Registered Agent and they’ll let you use their address for all address fields in your North Carolina LLC’s Articles of Organization. As far as what a Registered Agent does, we’ve written about that here: North Carolina Registered Agent. I would run this by a few professionals though as California has strict laws (corporate laws + tax laws) regarding “doing business” in the state. We have more info that here: LLC doing business in California. Hope that helps.

      reply
  27. Lauren June 22, 2018

    Hi, I’ve been asked to help a friend set up an LLc for a software business. Initially, for a trial with the first client, the income will be modest. But if the trial goes well, there could be a significant payoff. The work and most clients are in DC which has a high tax rate. Of course my friend, like most people, first thought of Delaware as the best place to incorporate. Your thoughts?

    reply
    • Matt Horwitz July 30, 2018

      Hey Lauren, it’s best to set the LLC up in the state where the owner is doing business. If they don’t have a storefront, retail shop, warehouse, employees staffed somewhere, etc., then they are doing business from their home. In that case, whichever state they live. Taxes would be paid in that state anyway. Hope that helps.

      reply
  28. NG July 5, 2018

    One of the big benefits you often read about Delaware LLCs is that you can protect your personal identity. Is this doable in any other states?

    reply
    • Matt Horwitz August 12, 2018

      Hey NG, yes, this is doable in a lot of states. You’ll just need to examine the Articles of Organization (or Certificate of Organization or Certificate of Formation) and the Annual Report (if applicable) and see what items are required. You could also form a Delaware LLC and have it own your home state LLC. This way if LLC Members are required to be listed in your home state’s Articles of Organization (or equivalent document), it’ll show the Delaware LLC’s name (not yours). Hope that helps.

      reply
  29. Charles July 11, 2018

    Hi Matt,

    I have a production company in Los Angeles. I will be shooting a low-budget, independent film in NY once financing is raised. It’s been suggested that I open an LLC for this production in Delaware or Nevada. Since I won’t be making money in NY – just shooting the film – could it still cause the problems you’re talking about? Looking forward to your response. Thanks!

    reply
  30. Sunny July 20, 2018

    For investment firm would it be best to open in LLC in Delaware? What would be best option since the sole business purpose is investing in startup / private equity. The partner/members are not living in same state nor in Delaware.

    reply
    • Matt Horwitz August 12, 2018

      Hi Sunny, it’ll likely be best to set up the LLC in the state where it’s doing business. If no offices, then that’ll be where the Member(s) are working from. Hope that helps.

      reply
  31. JAC366 July 22, 2018

    I’m a Florida (FL) resident. I have formed a FL LLC to launch my internet-based social media affiliate marketing firm. FL offers no privacy for LLC members, managers and registered agents, but DE corporate registration does offer privacy protections, so I am considering two options: 1) to register a Delaware (DE) Foreign LLC using a DE registered agent to conduct my internet-based business out of my FL business address, or 2) to register a Delaware (DE) LLC (Foreign DE LLC or Domestic DE LLC — don’t know ???) using a DE registered agent wherein the DE LLC will be the sole member and manager of my FL LLC. Please tell me which option is better (Option 1 or Option 2) or if there is a third option I should consider. Also, with my Option 2, should my DE LLC be registered as a DE Domestic LLC or a DE Foreign LLC? Note, there is no state personal income tax in FL. Thank you.

    reply
    • Matt Horwitz August 12, 2018

      Great question. I’d go with a Domestic Delaware LLC. Form that first. Hire a Registered Agent and a filing company for privacy (we recommend Northwest Registered Agent). Then form an LLC in Florida where the Member is the Delaware LLC. Hope that helps. Let me know if you have any followup questions.

      reply
  32. GIL July 24, 2018

    Hi Matt,

    What about if i do online business and Im a non resident alien, where should i form mi LLC?

    reply
  33. Natalie Evans July 27, 2018

    My daughter and family will be moving to Germany in October for a year or more. She and her husband will be residents of Germany, with work permits. She will use my CT address as her home address. She works at UMASS/Amherst and she will continue to work “remotely” on contract to them. Should she create a LLC in Massachusetts where she will be paid, or in Connecticut where her address will be? (You talked me out of creating a Delaware LLC).
    Any insight would be appreciated.
    natalie

    reply
    • Matt Horwitz August 14, 2018

      Hi Natalie, because there is some ambiguity around which state your daughter will be doing business in, you can likely form an LLC in either Massachusetts or Connecticut. In that case, it may be easier to form the LLC in Connecticut since there is already an address there that can be used as the Registered Agent. And the filing fees are much more affordable in Connecticut. Hope that helps.

      reply
  34. De'Andre August 1, 2018

    Hi Matt,

    I want to establish a corporation in Delaware but establish my llc(s) in the state l live/doing business in and make my corporation the single member of each one. I just wanted to know will l still be taxed if the llc(s) become pass throughs being owned by the corporation thats in Delaware out of state? Also would l have to register the corporation in state if the llc(s) are owned by it and they’re in state where l’m doing business? Thanx in advance

    reply
    • Matt Horwitz August 15, 2018

      Hey De’Andre, no, you won’t need to register your Corporation as a Foreign Corporation since you’re using a Parent/Child company setup. The LLCs will be Disregarded Entity LLCs, meaning the IRS “looks through them” and will tax them as a branch/division of the parent company, your Corporation. So all the tax reporting and filing requirements will flow up to your Corporation. Make sure to form the Corporation first, then list is as the Member when forming your LLCs. Hope that helps!

      reply
  35. Javier August 13, 2018

    Hi Matt. Thanks for your helpful blog. I am a Realtor working with a foreign investor. He’s not a US resident and wants to purchase real estate in Florida. I helped him set up a FL LLC (I am the registered agent), but had trouble getting an EIN number for the FL LLC from the IRS because the investor doesn’t have a SSN or an ITIN. (that’s a topic of different discussion though).
    Could he benefit from a DE LLC instead of the FL? We wouldn’t mind trashing the FL LLC as we haven’t made any transactions yet. I was advised that as a foreigner he’d benefit from no estate tax (in case of death). Thanks.

    reply
    • Matt Horwitz August 16, 2018

      Hi Javier, foreigners can still get an EIN from the IRS, just not online (that requires an SSN or ITIN). They’ll just need to submit Form SS-4 instead (by fax or email) and enter “Foreign” on line 7b. We have instructions here: how to apply for an EIN without an SSN.

      As for whether a Delaware LLC would be more suitable than a Florida LLC, you’ll need to consult an accountant and/or real estate attorney in both states as we don’t go into detail regarding estate tax and other pros/cons to foreigners investing in U.S. real estate. Hope that helps and thank you for your understanding. Feel free to share your findings though, as we’re curious to learn what you come up with. Cheers!

      reply
  36. Essence August 14, 2018

    *Bump because I would love to know the answer to this. I previously registered an LLC in Delaware with the intents for it to be the holding company for future subsidiaries. I think someone reported a transaction to it creating a D&B number for it, but it hasn’t actually been used for any business. Actually, the D&B transaction is for one of the new companies I need to LLC ( I have no idea how this happened). I was residing in PA and have recently relocated to GA. I need to set up the LLC for that new company I mentioned which is an online based eCommerce business. Based on the above, it would seem that I need to file it in GA but D’Andre’s question sounds more like my original setup intentions..hopefully you see this in the next few hours as I already started the registered agent part of the setup…I do, however, need clarification on what he means by “pass through’s owned by the corporation”. Could he be referring to who actually owns the subsidiaries?

    reply
    • Matt Horwitz August 16, 2018

      Hey Essence, if we understand correctly, you want to use a Parent/Subsidiary LLC setup. In that case, your soon-to-be LLC would be owned by your Delaware LLC. Since you’ll be running your eCommerce business from your home in Georgia, that’s where you’ll be doing business and that’s where the Subsidiary LLC should be set up. The technical name for a “pass through” entity owned by another company is a Disregarded Entity.

      Legally, your LLCs are separate and distinct entities, but the IRS doesn’t care about that. So in your case, for federal tax purposes, the IRS “ignores/looks through” the Georgia LLC and looks for who owns that. It’s your Delaware LLC. Then they “ignore/look through” the Delaware LLC and see who owns that. It’s you. So at the end of the day, your LLC’s tax reporting will fall onto your personal tax return. Make sure you work with an accountant to make sure things are filed properly. In your case, both of your LLCs are Disregarded Entities. Furthermore, this is assuming your LLCs will take on their default tax classification. If you elect to have either LLC taxed as a Corporation (a C-Corporation or an S-Corporation), then that will change things.

      We also recommend checking out our Tax-reporting versus Tax-paying article. Hope that helps!

      reply
  37. Adam Rashid August 20, 2018

    Matt Horwitz, Good day I hope you doing well
    after a long research regarding the LLC and the way to be legal to do business and save your self, I found your page and I’m really glad.
    so my concern is I’m about to open an online store and the suppliers in the US will do all the work for me from A to Z I just need to handle the fees and web process
    and I’m not living in the US at all, So what the best way to register for an LLC to get the EIN No. and be able to have a Bank Account to receive my fees from clients and be in the right side.

    I really appreciate what you doing.
    I hope I can get an answer to my concern.

    Thank You,
    Best Regards.

    Adam Rashid

    reply
    • Matt Horwitz August 31, 2018

      Hey Adam, you can pick any state you’d like, however, we recommend “working backwards” in regards to the LLC bank account. Meaning, read non-US resident opening U.S. bank account for LLC, figure out the bank you want to go with, speak with them on the phone, then, considering other factors, select the state where you want to form your LLC. Then check out our 50 state LLC guides page, select the state, and follow the lessons. In the Registered Agent lesson we have tips about finding an address to use for the Registered Agent address, main LLC address, and mailing address (if applicable). Form the LLC and wait for it to be approved. If you don’t have an ITIN or SSN, you can still get an EIN for your LLC. We have instructions here: how to apply for EIN for LLC without SSN. Then work with an accountant to make sure you properly file your taxes. Hope that helps!

      reply
  38. Paul September 11, 2018

    Great article and common sense guidance for most businesses; however, what about pass throughs (LLCs & S Corps) for those who (1) live in states that don’t recognize pass throughs and (2) have no revenue derived from their home state? This is not uncommon for IT companies. Key issue seems to be what one’s state of residence considers “doing business.”

    We have a unique situation – we live in DC, have a DE domestic S corp (registered as a DC foreign corp), but all of our customers are in Asia. According to DC code we aren’t “doing business” in DC because zero revenue derived from the state and we’re a foreign entity. Note that DC is quite specific that a foreign entity with sales people in DC but selling only to those outside DC aren’t “doing business.” But because DC doesn’t recognize S corps filing a DC corp return exposes us to DC corp tax (30% higher than if income was reported on personal return). In this situation can we just file a federal S return for the corp and report the income on our DC personal return and not file a DC corp return? Any insight you can provide would be greatly appreciated.

    reply
    • Matt Horwitz October 16, 2018

      Hey Paul, thank you. And man, excellent question! I hear you on D.C. being a pain as they don’t recognize the S-Corp election, but instead, treat the S-Corp as a C-Corp for District taxes. Your question is beyond our scope though and we recommend speaking to a few accountants. I’m curious to hear any findings if you’d like to share. Thanks for understanding.

      reply
      • Paul October 17, 2018

        Thanks for your reply, Matt. Good news is no need to file corp returns or pay corp taxes in DC provided we are not “doing business” there. Went directly to DC Audit and received confirmation from two of their accountants. DC has a list of activities (available on their website) that do no constitute doing business such as having bank accounts, employees, meetings, soliciting sales/executing contracts for customers outside DC, etc. Net impact for us is we report and pay taxes on all income derived from the business on our personal return rather than on a higher rate corp return. So in addition to a lower tax rate the basis is lower as we can apply our personal deductions to get a lower taxable AGI. And because we also aren’t “doing business” in Del we only pay annual Del franchise tax, no corp tax on revenue.

        Granted, we’re an unusual case as most enterprises have activity in either the state where they’re incorporated or physically located but this does serve as a lesson; double check the advice of accountants as our previous firm (big one) and current shop (mid size) insisted we needed to file DC corp as we had been doing for years. Only after reading the regs and calling the city did we get an accurate ruling. We also discovered both firms had incorrectly applied the sales apportionment factor (% of sales in state vs out of state) for all past returns.

        As a tech startup carrying huge losses initially (and thus little or zero tax liability) we only started scrutinizing the matter recently when the tax bill became stratospheric. And we were able to file for a refund of corp taxes paid for prior years (personal returns were not affected because personal deductions put us way below any state tax liability).

        Again, the lesson to all is don’t instinctively rely blindly on advice from accountants and lawyers as it can be expensively wrong. Also, check their work such as sales apportionment factor (if your state/jurisdiction has it) especially if you have significant out of state customers. Don’t just sign and send returns prepared by your accountants; crawl through every. single. line. It’s your money, not theirs.

        Most important, do your research such as via LLC University ;) Seriously Matt, the guidance you provide dispelling the oft repeated “set up a Delaware LLC!!” recommendations from so many accountants and lawyers is invaluable. In our case setting up a Del Corp years ago ultimately proved to be the right move but only because of our very unique situation and until now we had not fully utilized it. We were actually in the process of terminating our Del corp registration when we decided to take one last look and good thing we did.

        Regardless, I would agree that the vast majority of businesses located outside of Del do not need or a Del LLC or corp, completely unnecessary. But if you’re in a state that doesn’t recognize pass throughs and you have no domestic (in state) activity/customers then our approach may work for you. But please call your state/local tax authorities to confirm.

        Thanks again Matt for providing such a valuable resource.

        reply
        • Matt Horwitz November 22, 2018

          Hey Paul, didn’t mean to take this long to get back to you. Just had a ton of questions to reply to first. Man, good call on going directly to DC Audit, and that’s some solid news right there. Also great findings on the reduced taxable AGI. We do know that all states have statutes regarding what is not doing businesses, but we don’t post that as it only begs dozens of followup questions and more confusion for most of our readers. But you’ve done your research.

          And you’re correct. Most of our readers will have business activity in their home state and/or state of formation. Thanks for also sharing your findings about double-checking an accountants work. This is solid advice.

          And wow, thank you so much for the kind words, Paul! It’s funny; this article/video is among the most disliked in our library. It’s quite a controversial subject matter LOL!

          Thanks again Paul. I REALLY appreciate the value you’ve provided to this page. Cheers!

          reply
          • Paul November 22, 2018

            Hey Matt I see you are catching up on some work over Thanksgiving as well! Thanks for the reply and kind words, happy to share what we learned the hard way.

            Surprised to learn that this topic is so controversial (yeesh, you’re just trying to get folks to research and confirm before taking action) but I guess you’re challenging some established myths much like how some estate attorneys push trusts for everyone when a well drafted will and proper titling of assets is all that is needed for most.

            My final two cents is can’t emphasize enough folks contact their state tax audit departments (AFTER reviewing all the rules of “doing business”) to get a solid read on nexus and taxation. Plus its free and you can get written confirmation which can prove invaluable should a future need arise, e.g. tax court (cringe, shudder). I always practiced, “don’t go looking for trouble” when it came to the govt but better to come clean and find out today re taxation rather than years later after either wasting a bundle or worse, not filing/paying and getting whacked with penalties. Also, sometimes silly things like having a vanity business address in a city (where you never go) can trigger “doing business” (biz registration, license, corp returns, etc.) because you are publicly offering your services to residents

            Matt thanks again for a great resource, you’re my first stop when researching LLC and other pass through riddles. Have a great Thanksgiving.

            reply
            • Matt Horwitz November 23, 2018

              Hey Paul, yes, this subject matter is very controversial lol! A part of our mission is dispel many of the LLC myths and provide better education. I love your tip about contacting the State Tax Audit Department. Very helpful! Thanks again Paul, and you too!

              reply
  39. John September 13, 2018

    Hello Matt, I see you are giving some great advice and I would like to know what you think of my situation.

    My father is a US Resident, soon will be holding a green card. I currently live in EU and am running a business but am paying very high tax rates.

    If my father were to open the LLC in the US and hire me as an employee from the EU, could I continue to work and pay my own personal income tax in my EU Country, but the LLC in the US pay the US tax rates on all of the business revenue?

    Is this even legal?

    Best Regards,
    John

    reply
    • Matt Horwitz October 16, 2018

      Hey John, this is a great question, but we’re not sure as it’s beyond our scope. We recommend speaking with a few international accountants. Did you find anything else out in the meantime?

      reply
  40. Kay Rodney September 18, 2018

    Hi Matt,

    This information is very helpful! I reside in Delaware and will be doing business in DE, NY, and possibly NJ and PA. I will partner with a relative, but she resides in Florida. Will forming an LLC in DE where I reside be problematic for my relative?

    Also, is it okay if we have clients in other states?

    Thank you in advance for your time.
    Kay R.

    reply
    • Matt Horwitz October 17, 2018

      Hi Kay, no, forming the LLC in Delaware will not be problematic for your relative in Florida. If you guys end up doing business in Florida – as in the other states – then you’ll want to register your Delaware LLC as a Foreign LLC in those states. And yes, you can have clients in any/all states. Where the LLC is doing business more so comes down to where you are running operations from, not where your clients are. Hope that helps.

      reply
      • Paul October 18, 2018

        Kay, check FL definitions for “doing business.” While I agree with Matt to a certain extent, we learned in DC that many business activities (having bank accounts, conducting sales/admin activity for customers outside DC, having employees, having meetings, etc.) do not qualify as doing business in the state thus no biz registration or tax filing requirements. For many states the key trigger is whether you have customers in the state, are selling/offering services to residents of the state (via retail front or reps), and/or have state derived revenue. Further, your FL relative owning part of your business does not on its own create nexus for corp state tax or registration purposes.

        If your FL relative is working from home and you have no customers or revenue generated from FL then you may not meet the definition of FL “doing business.” Check with your state’s tax or audit agency to confirm – http://floridarevenue.com/taxes/taxesfees/Pages/corporate.aspx – good luck.

        reply
        • Matt Horwitz November 22, 2018

          Hey Paul, thanks for chiming in! I agree. I think in Kay’s case, most business will be done in Delaware and not Florida, therefore, a Florida Foreign LLC qualification is likely not necessary. Kay, if your Delaware LLC is legally doing business in NY, NJ, and PA, you’ll want to qualify/register as a Foreign LLC in those states. Also, you’ll likely have state tax filing obligations if income is derived from those jurisdictions. A competent accountant should be able to assist with that.

          reply
  41. Ed September 19, 2018

    Hi Matt,

    I live in DE and have rental property in NJ. Can I just create a domestic NJ LLC and use my DE home address as the business address, or would I need to create a domestic DE LLC and register as a foreign NJ LLC?

    reply
    • Matt Horwitz October 18, 2018

      Hi Ed, if you form a Domestic NJ LLC, your Main Business Address (aka Principal Office Address) can be a Delaware address, but your Registered Agent address must be in New Jersey. You don’t have to form a Domestic DE LLC and register it as a Foreign NJ LLC. You can just form a Domestic NJ LLC if you’d like since that’s where you’re doing business. Hope that helps.

      reply
  42. Kamran September 22, 2018

    Hi Matt,

    First of all awesome job for writing this and to help everyone!!!
    Here is my situation, i am in the planning phase of opening up an LLC in GA for marketing, my llc will make money on selling US based cable companies services. Although all the marketing services will be outsourced from a company based in india. So main expenses will be to pay to indian based company for providing call center/marketing services.
    I want to know what kind of llc should i open to separate taxes from my personal taxes, also any advice to save on taxes will be much appreciated.

    Thanks a lot in advance.
    -Kamran

    reply
    • Matt Horwitz October 18, 2018

      Hey Kamran, you’re very welcome! And thank you :) Although marketing services will be outsourced, you’ll still be running your LLC and doing business in Georgia, so a Georgia LLC is the way to go. Check out our article about how are LLCs taxed. If your net income begins approaching $70,000 per year (more or less), you can begin looking into having your LLC taxed as an S-Corp. Hope that helps.

      reply
  43. carlos October 8, 2018

    Hi Matt, thanks a lot for your post. I have a question about this.

    I’m not a US resident or citizen but 3 or 4 times per year i do online business (eg. design, edition, photography retouching) for NYC based companies. Since I’m thinking about expanding my business they recommended me opening an LCC in Delaware for this purposes. Are they correct or is there another option?

    thanks in advance
    c

    reply
    • Matt Horwitz October 25, 2018

      Hi Carlos, as a non-US resident/citizen, you can pick any state you’d like, however, we recommend “working backwards” and figuring where you want to open a bank account for your LLC (it’ll need to be opened in person in the state where the LLC is formed) and figuring out what documentation and addresses they want. We have more information here: US LLC bank account for foreigners. Hope that helps.

      reply
  44. Eric October 20, 2018

    Hi Matt,

    Great article and thanks for all the tips. I wasn’t able to see if my particular situation applied to any stated above. I’m a US citizen currently working abroad for an undetermined amount of years and want to form an LLC for an online Amazon business in the states. My last place of residence was Virginia which is impossible to abandon so I am considered a VA resident when it comes to paying state taxes. Does this mean I should form my LLC in Virginia even though I’m not actually “doing” work or have a physical presence there? Would it be ok to form it in Delaware, Nevada or Wyoming?

    Thanks for the advice,

    Eric

    reply
    • Matt Horwitz November 22, 2018

      Hi Eric, this falls into the gray zone. Not sure what the best course of action is. Why not just form the LLC in Virginia? What is your reason to go out of state? The Virginia Annual Registration Fee is $50/year. Delaware is $300. Nevada is $350 (not to mention $425 to form). Wyoming is the same cost; $50. Virginia also has charging order protection.

      reply
  45. AD October 30, 2018

    Hi Matt,
    I am a permanent resident of US and plan to start an LLC for online software marketing and networking which will be used throughout the world. Currently I am between projects so I have been moving around staying in different states in an apartment lease. Eventually i pay my taxes based on the number of months i have been in each state. Do you think it makes sense to register the LLC in Delaware and have a registered agent in this scenario? Once i decide on a permanent project in a state, can i then transfer the LLC to that state?

    Thanks,
    AD

    reply
    • Matt Horwitz November 22, 2018

      Hey AD, this falls into somewhat of a gray zone. When you say “move” an LLC, you’re likely desiring to redomesticate, however, not all states allow this. It might be worth considering where you will ultimately make your state of residency and then forming an LLC there. Hope that helps.

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      • AD December 10, 2018

        Thank you Matt!

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  46. Sophie October 31, 2018

    Hi Matt,

    I am a non-US resident from the UK and it looks like I may have fallen in the trap of registering my business as an LLC in Delaware even though my business will not be operating there at all.

    My business is essentially an online business providing musicians for events which are in California and so I assume that even though I am a non-resident and the business has no employees, the business is still being carried out in California by contracting musicians to play. Does this mean that the LLC would need to file for foreign qualification in California?

    If this is the case, do you recommend dissolving the Delaware LLC and start ing afresh in California, saving future double payments and general headaches?

    Thank you so much!

    reply
    • Matt Horwitz November 22, 2018

      Hi Sophie, this was originally written for those considered US persons for tax purposes, however, if your LLC is actually doing business in California, then you may want to consider forming a California LLC (California tax will likely need to be filed, even as a non-resident) and dissolving your Delaware LLC. However, this falls in the “gray zone”, so it might actually be best to speak to a few attorneys and a few accountants to get a better idea of the best course of action. Hope that’s helpful.

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  47. Illia November 13, 2018

    Hi, thanks for the vid and article. It was pretty helpful, but I have a question. What if the person live out of US, and form an LLC in Delaware to provide web services for customers in California with no presece in US. In this case, should he register as a Foreign LLC in California in order to do business?
    Thanks

    reply
  48. Sai November 19, 2018

    Hi Sir,

    we started LLC in delaware when we were in Delaware state.Now we have moved to Arkansas and we want to keep running our business from Arkansas.What is the viable option scrap delaware company and fresh start in Arkasnas .We are worried to change all the details with manufacturers.This is very good article and eye opener to all small business like us. Really Appreciate your response and time.

    Regards,
    Sai

    reply
    • Matt Horwitz November 23, 2018

      Hey Sai, you’re very welcome. If you want to keep the bank account, EIN, and company history, you can either 1) register your Delaware LLC as a Foreign LLC in Arkansas or 2) domesticate/convert your Delaware LLC into an Arkansas LLC. Having said that, I don’t think option 2 is available in Arkansas (only some states allow for domestication). We don’t cover this subject matter in depth though, so we recommend calling the Arkansas Commercial Services Department to find out. If #2 is not available and you don’t want to do #1, then you’d want to consider dissolving the Delaware LLC and forming an Arkansas LLC. However, in that case, you’d need a new EIN, new bank account, and you’d need to update the manufacturers you work with. Essentially, it’s an entirely new company. In summary, you’ll want to weigh the value of the Delaware LLC’s existing history, relationship, registrations, etc., and determine if it’s just easier to leave the Delaware LLC open and file as a Foreign LLC in Arkansas. Hope that helps.

      reply
  49. Tiffany December 11, 2018

    Hey Matt,

    This thread has been super helpful. Thank you!

    I have a logistical question: I’m based out of RI. I currently consult about 4x a year for an institution in MA and have been filing as 1099 income (I have a full time job in RI separate from consulting). An addition and more lucrative consulting opportunity has come along (also based in MA) that has me thinking that I should form an LLC for protection should there be any issues with either place. I don’t have issues with paying the taxes, etc. But if I LLC in RI, my home state, do I have to file as foreign LLC in MA? (both locations are expensive)

    reply

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