Which State to choose?
Determining the optimal state for filing your LLC legal paperwork isn't straightforward. However, for many small businesses, the most straightforward and cost-effective strategy involves establishing an LLC in the state where your business is located. This choice helps minimize state fees and regulatory obligations while enabling you to access any incentives or initiatives tailored for local businesses. However, if you’re an online company or do business across a range of regions, if you don't have a fixed location or are outside the U.S, consider Nevada, Delaware, Wyoming as your LLC's home. These four states actively court LLC formations and have business-friendly laws and/or privacy protections that may appeal to you. Always seek legal and tax advice before making a final decision.
Once a business owner has decided to incorporate a business or form a company, the next step is to choose a state of incorporation (also called your home state or domestic state). You are free to form your business in any state, but there are factors to consider when choosing, such as forming in the state where the business is located versus another state, state statutes, and state taxation requirements.
When forming a company, many business owners opt for incorporating it in the state where their business operates physically. However, if a company is incorporated in one state but conducts most of its business activities in another state, it might be required to seek foreign qualification. Business activities that may trigger this requirement include having a physical facility such as a warehouse or brick-and-mortar shop in the state.
Foreign qualification entails registering the company to conduct business in a state other than its state of incorporation. This involves completing specific paperwork and paying additional state filing fees. Once foreign qualified, businesses are subject to ongoing requirements and fees both in the state of incorporation and in the state(s) of qualification.​​​
Delaware
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There is no state corporate income tax for corporations and LLCs that are formed in Delaware but do not transact business there. (There is a franchise tax, however.)
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One person can hold all officer positions and serve as the sole director of the corporation or sole member/manager of the LLC.
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Shareholders, directors and officers of a corporation and members or managers of an LLC need not be residents.
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Shares of stock owned by persons outside of Delaware are not subject to Delaware taxes.
While incorporating in Delaware holds potential advantages, one disadvantage is that if you operate your business in another state or states, you may need to “foreign qualify” your business in the state(s) where you are doing business. Foreign qualification is the process of registering a company to transact business in states other than its state of incorporation. When you foreign qualify your company, you must file paperwork with the states in which you’ll be transacting business and pay the necessary filing fees. You will also be subject to ongoing filings and fees (such as annual reports and/or franchise taxes) in your state of incorporation and state(s) of qualification.
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Why has Delaware been one of America’s most popular corporate and LLC destinations? More than 50 percent of all U.S. publicly-traded companies and 60 percent of Fortune 500 companies call Delaware home. But these same advantages may not always apply to smaller businesses. For questions on which state is best for the formation of your business, talk with an attorney or accountant.
Common advantages of forming in Delaware:
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Delaware’s corporation and LLC laws are very flexible.
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Delaware’s legislature reviews and updates the corporation and LLC laws every year.
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Delaware has a specialized court that hears cases interpreting the corporation and LLC laws and that decides cases involving management and owner rights and liabilities.
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The filing office is considered modern and helpful.