Where you form your LLC can have many far-reaching repercussions down the road, so it pays to consider the decision carefully.
Some states are working hard to attract new businesses. Since much of what applies to corporations also applies to Limited Liability Companies you may want to read Where to Incorporate: The 3-Man Fight between Delaware, “Delaware West” and “Delaware South”
The idea that there is one “very best” state may prove to be a costly assumption for those businesses buying into the hype when researching where to form an LLC. You’ll need to look beyond the hype and figure out which advantages will actually apply to your business if you do form your LLC in a state other than your home state.
Below are a few things to consider as you review the advantages of forming an LLC in a state other than your own. And, by all means, please consult your attorney and tax consultant before making a final decision. They are qualified professionals who should be familiar with your unique situation as well as the state and federal laws that will apply.
Once you have selected the state in which to form your LLC, MaxFilings can help you form your LLC online.
Foreign qualification requirements
Foreign qualification requirements alone can be reason enough to form an LLC in your home state rather than another state. In order to do business in a state, an LLC must either be formed there or be qualified to do business there. So if you select another state, you will then have to qualify as a foreign in order to do business or hold property in your state.
Foreign qualification cost
Believe it or not, in most states it actually costs more to qualify as a foreign LLC than it does to form an LLC. But even if initial filing costs are the same, annual registration fees and registered agent fees add an additional layer of cost.
Keeping up with and complying with the requirements of multiple states will increase your administrative costs.
Applicable state laws
Once an LLC has registered as a foreign LLC and is qualified to do business in another state, that state’s laws for LLC’s apply to the LLC in that state, not those of the LLC’s home state. So many of a state’s favorable laws may be of no value to you since they will not apply out of state, calling into question the value of the often promoted secrecy or privacy provisions of some states.
Forming an LLC in a state because of its favorable tax laws does not mean you won’t be subject to taxes in other states in which you do business. And one would certainly expect state taxes for an LLC falling under the jurisdiction of multiple states to exceed those for an LLC answering to just one state.
Since tax issues are very complex as well as subject to interpretation, we always advise you to consult with an expert tax advisor before making decisions concerning taxes. Following the advice of unqualified advisors is often an expensive mistake.
Where to form an LLC: Conclusion
Before you decide to form your LLC in another state, make sure you will actually be able to profit from its favorable provisions. Many times the advertised advantages don’t produce the hoped-for value in the long run. In fact, your home state may not be so bad after all.