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What is the Best State to form a LLC?

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  1. Home
  2. Knowledge Base
  3. Business Organization
  4. What is the Best State to form a LLC?

We get this question a LOT — more often than I would care to guess.

The problem is, it’s really not an easy question to answer. A lot depends on where you live, where you do business, how you do business and your personal circumstances and preferences.

Therefore, to help answer this question, we’ve put together the following chart:

State of
Residence
Delaware New Mexico Nevada Wyoming Any Other State?
If “transacting business”, do you need to register a company in the state? Yes, all other states
Great for Asset Protection / Charging Order Protection? (Passed the RULLCA) Uses Old LLC Act Uses Old LLC Act CA, DC, FL, IA, ID, NE, NJ, UT
Doesn’t disclose ownership information on the Internet? Not Anonymous AL, CO, GA, IA, VA
Doesn’t require disclosure of ownership information to the State at all? Must Disclose Must Disclose Must Disclose IA, GA, CO
No Need to File Annual Reports / Pay Annual Fees? Expensive Annual Fees Expensive Annual Fees Annual Reports Required
No corporate income tax? There is Corporate Income Tax NV, OH, SD, TX, WA

The chart can be misleading, though, regarding a few issues.

First, consider anonymity. Several states permit anonymity (i.e. defined as not publishing ownership information on the Internet). Nevada is not one of those states. Of the states listed, only one state (i.e. New Mexico) doesn’t want to know about ownership information at all. The other states (i.e. Delaware and Wyoming) require us to disclose ownership information to them, although they keep it private (although if they change their laws, it can expose folks ownership information later). Therefore, New Mexico (along with IA, GA and CO) are considered “more anonymous” because the state cannot publish such information, even if it wanted to.

Second, corporate income tax is often misunderstood. If you have a pass-through entity for tax purposes, the company is NOT paying corporate income tax per se. The profits / losses “flow-through” to the owners, and the owners report the profits and/or losses on their personal income taxes, wherever they may live. Therefore, if you want strong anonymity and are considering New Mexico because of that, but are turned off by the fact that New Mexico charges corporate income tax — you don’t need to worry about corporate income tax if you are going to tax your company as a pass-through entity. However, if you wanted to tax your LLC as a C-Corp, then you would want to steer away from New Mexico and consider one of the other states.

Third, most states require you register a LLC that you own in the state you reside, even if you’re not doing business in that state. Therefore, using a NM or DE or WY company to conduct business anonymously will only work for a little while, until your home state gets wise and makes a demand. You’re much better off addressing this from the start, so you don’t have to make costly changes later. Read our knowledge base article on this topic.

Fourth, there are two “Acts” that govern LLC law in the United States. The first is the “Old Act”, which is the Uniform Limited Liability Company Act, which almost all states passed with some modifications from one state to the next. The next is the “Revised Uniform Limited Liability Company Act” (or RULLCA). The RULLCA has only been adopted by a few states, but it was written to patch-up some deficiencies in the Old Act, including making it harder to obtain charging orders and foreclose on the LLC. Therefore, states that have passed the RULLCA are considered “stronger” for “asset protection purposes,” although only the States of Iowa and Wyoming have passed the RULLCA and still permit Anonymity.

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