Best States for LLCs

Factors to Consider When Choosing a State

With 50 states and DC, numerous factors ultimately contribute to choosing the best state for your LLC.

• Fees. It costs money to form and maintain an LLC. Filing articles of organization with the state ranges from $40 (Kentucky) to $500 (Massachusetts). Some states charge exorbitant annual report fees as well (looking at you again, Massachusetts), while states like New Mexico and Arizona don’t require LLC renewals or reports at all. And then there’s business licensing and permit fees. Costs add up much faster in some states than others.
• Privacy. Some states are considered “anonymous LLC states” where you can form an LLC business entity without providing the identity of the owners, members, or managers on public state filings. States known for their privacy include Delaware, Wyoming, New Mexico, and Nevada. Having an anonymous LLC can prevent unwanted individuals from having public access to your private information.
• Taxes. Some states have really advantageous tax laws. Just remember that in most cases “taxes are paid where money is made.” So, even if your LLC is formed in a state with great tax laws, you may not be able to take advantage of them if all your business is done in your home state. Even worse, you may owe additional taxes and fees wherever you formed your LLC. States like California and Vermont have LLC franchise taxes—taxes just for doing business in the state.
• Liability protection from lawsuits. The primary reason that people form LLCs is to avoid personal liability from lawsuits or the debts of the business. When you form an LLC, only the LLC is liable for the debts and liabilities incurred by the business (not the owners or managers). However, some states have stronger legal limitations for creditors, which can better protect your LLC and its assets.

Generally, forming an LLC in your home state will save you time and money. In fact, most LLC formation experts agree that forming an LLC where you live and where you plan to do business is your best bet.

However, there are a few states out there that go above and beyond to provide particularly favorable conditions for LLCs. If you’re willing to throw off conventional wisdom and go all in on the state that best meets your LLC’s needs, then this list is for you.

Best State to Form an LLC for an Online Business

Whether you’re selling birdhouses on Etsy or books on eBay, running an online business is less about where your customers live, and more about where you run your business from. As with a brick and mortar business, if you are based in your home state, you’ll do best with a home state LLC.Registering an LLC in Wyoming won’t mean you can avoid California taxes if your LLC is actually based in California.

That said, maybe you’re operating from out of the country, have the freedom to move wherever is best for your business, or just want to know how your state measures up. Wyoming is the runaway winner in this category with low startup costs, low annual report fees, low taxes, and robust liability and privacy protection.

Sure Delaware and Nevada are the big dogs when it comes to business formation, but Wyoming offers basically everything they do, and beats them both when it comes time to pay the piper. Hard to beat a one time $100 LLC filing fee, and a $60 annual report, especially when Delaware and Nevada charge hundreds each year just for the privilege of having an LLC in their states.

Winner: Wyoming

Best State for LLC Asset Protection

Nevada, Delaware, and Wyoming are well known for having superior asset protection codified in their state laws, where a charging order is the sole remedy to pay the debts of the LLC. A charging order is similar to the garnishment of wages, but in this case it is applied to an LLC, and is usually limited to the dollar amount of the judgment.

In many states, statutes don’t expressly limit the rights of creditors. So, in states like Indiana and Missouri, personal creditors could potentially force the sale of an LLC’s assets. In states with strong charging order protections, creditors cannot force the sale of the LLC’s assets to satisfy debts.

Tie: Delaware, Nevada and Wyoming

Best State to Form an LLC for Real Estate

We’re going to call this one a tie between Delaware and Wyoming. Both states allow for a series LLC, which can help real estate investors segregate their properties and enhance their liability protection. A series LLC allows real estate investors to create multiple series under the parent LLC to hold properties separately—without the full cost of forming and maintaining additional LLCs. The cost savings and flexibility of the series LLC structure makes it attractive to buy and hold real estate.

Not every state allows for series LLCs. Both Wyoming and Delaware offer excellent asset protection, and privacy, though a Wyoming LLCwill have lower costs than a Delaware LLC (although note that if your real estate is located in Wyoming, the state’s annual report charges a percentage of Wyoming-based assets).

Tie: Delaware and Wyoming

Best State for Anonymous LLCs

Some states are considered “Anonymous LLC states” where you can form an LLC business entity without providing the identity of the owners. States known for their privacy include Delaware, Wyoming, New Mexico, and Nevada. Having an anonymous LLC can prevent unwanted individuals from having access to your private information.

One reason Delaware, Nevada and Wyoming are known for privacy is that they all allow for nominee services. A nominee is essentially a public representative contracted by the LLC to keep owner names more private. However, these services can be expensive, complicated (and sometimes dubious).

Delaware, Wyoming and New Mexico also have a much more straightforward privacy solution—these states don’t require ownership information on public filings. While you’ll still need to publicly list a registered agent and organizer, you can easily hire a registered agent service and a formation service. If you’re a small business that is looking for a mix of low costs and privacy, New Mexico is the cheapest Anonymous LLC option. New Mexico has no LLC annual report filing or fee.

Winner: New Mexico

Best State for Single Member LLCs

Many states do not afford single member LLCs the same level of protection from creditors as they do for multi member LLCs. In fact, in some states, recent court decisions have stated that the charging order should not be the creditor’s exclusive remedy if there is only one member. This means that a single member LLC is more in danger of having its assets seized in order to pay debts. The good news is states like Wyoming, Nevada, and Delaware have not budged on their belief that a charging order should be the exclusive remedy to collect debts from both single and multi member LLCs. This means that single member LLC owners really need to think long and hard about what state has their back.

If you could form your single member LLC in any state, it’d be smart to look Wyoming’s way. Not only does Wyoming have low taxes, and a commitment to privacy, it also offers robust asset protection for single member LLCs. Sure Nevada and Delaware offer strong protection for single member LLCs, but Wyoming is more affordable at just $100 to form your LLC and $60 to file the annual report.

Winner: Wyoming

Best State for Cryptocurrency LLCs

Although cryptocurrency is a relatively new phenomenon (Merriam-Webster didn’t add the term to its dictionary until 2018), Wyoming looks to be the home base, at least for crypto-based LLCs. Wyoming, which has never been keen on excessive regulation, has passed over 20 crypto-focused laws in the last few years that lets digital currency startups test new products and technologies without being overburdened with regulations.

Beyond that, Wyoming recently passed SF0038, which allows for decentralized autonomous organizations (DAOs) to register as Wyoming LLCs. This gives many crypto companies traditional legal protections not found in other states. In doing so, Wyoming laid the foundation for DAOs to be legally recognized and for cryptocurrency LLCs to flourish.

Winner: Wyoming

Best State for LLC Taxes

If we’re just talking about taxation in a vacuum, then Wyoming and South Dakota take this hands down. With no state corporate income tax, no personal income tax, no inventory tax, no gross receipts tax, and no franchise tax, it’s as if these states are allergic to taxation.

These states do have sales taxes, and Wyoming’s rate averages out to be a little over 5% depending on where you live or purchase your goods—but that’s still one of the lower rates in the nation. South Dakota’s sales tax rate averages a bit higher but still isn’t too bad. Of course, your LLC will really only benefit from the bulk of these tax savings if you live and do business in one of these states.

Tie: South Dakota and Wyoming

Final Thoughts

If you have some flexibility in where to live and conduct business—or if perks like privacy or protection matter more than extra costs and complication—a handful of states are clear winners. While “best” is always up for debate, the states listed above do bring a little something extra to the table. And at Northwest, we can help you start an LLC in any state you’d like.

Learn How to Start an LLC