Best States To Form An LLC In 2024

An LLC or Limited Liability Corporation is a type of business entity that offers benefits such as legal protection of personal assets and pass-through taxation through a separate entity. Between its reduced (if not eliminated) personal liability and straightforward tax structure, LLCs are one of the most popular types of business formations in the U.S. today, according to the IRS. There are good reasons for this popularity.

LLCs offer businesses a number of benefits:

Limited Liability

As with corporations, LLCs provide limited liability protection for their owners (or “members,” in LLC terminology). This means the owners’ personal assets are protected from the LLC’s creditors and any lawsuits filed against the LLC.

Taxation

When it comes to income taxes, LLCs are automatically taxed as either a sole proprietorship (in the case of single-member LLCs) or a partnership (in the case of multi-member LLCs).

When taxed as either a sole proprietorship or a partnership, LLCs function as a pass-through entity for tax purposes, meaning the LLC’s income is passed through to the members who then report this income on their personal tax returns.

However, LLCs can also elect to be taxed as either an S-corp or a C-corp. An S-corp is also a pass-through entity, but there are restrictions on which LLCs can elect S-corp status. LLCs that are taxed as C-corps are considered taxable entities in their own right and must pay corporate income taxes.

Simplicity

Unlike corporations, LLCs are much simpler to run. For example, they’re not required to hold shareholder meetings or have a board of directors. Depending on the state in which an LLC is formed, you may have to meet annual reporting requirements but, overall, these requirements are a lot lower than corporate filing requirements.

They’re also simple to form. You can do it yourself, use an LLC service or retain a business attorney to do it for you.

For most people, the decision to start an LLC marks an exciting point in their lives. After all, you’re about to embark on something that’s potentially life-changing. You’ve done the research, and you know an LLC’s the best option for your new business. And of course you want to make all the right decisions, from the very start.

So how do you go about choosing the right state to start your LLC? Here’s a simple rule of thumb:

Start your LLC where you are. In other words, your home state (i.e., the state in which you’re residing) will most likely be the best place to form your LLC. Why? As you’ll see below in our discussion about the best states to start your LLC, forming your LLC in your home state is usually the simplest, most cost-effective way to start your LLC, despite all appearances to the contrary.

Exceptions to this rule of thumb. As with everything in life—and especially where legal rules and regulations are involved—there are exceptions to this rule of thumb. Here are some of them:

• You live in one state but operate your business solely in another. In this case, you might be better off forming your LLC in the state in which you operate your business. Note, however, that if you work on your business while you’re in your home state, you’ll likely be considered to be operating your business in your home state as well, in which case you’ll probably want to follow the general rule of thumb.
• Your LLC’s business is investing in real estate. This means your LLC will be operating its business in the state where it’s invested in real estate, since that’s where you’ll be renting out your property or selling it for gain. In this case, it’s likely better for you to start your LLC in the state in which your LLC will be investing in real estate.
• You’re a non-U.S. resident. Since you don’t actually reside in the United States, you don’t have a home state so this rule of thumb won’t apply to you. Your nonresident status may mean you’ll attract nonresident taxes, so you should consult with a tax professional before forming your LLC.

If you’re not certain if any of these exceptions apply to you, you should consult with an experienced business attorney who can help you make the right choice.

Best for: Ease, simplicity and cost-effectiveness

Despite everything you might have heard online or from well-meaning friends, in most cases the best state to start your LLC is your home state (that is, the state in which you reside). This will most likely be true even if you happen to live in a state with high fees or high taxes (for example, California or Massachusetts).

Here’s why:

Domestic vs. foreign LLCs. In LLC terminology, a state will consider an LLC to be a domestic LLC if the LLC was started in that state. So, if you live in Massachusetts and you form your LLC there, Massachusetts will consider your LLC to be a domestic LLC.

States view LLCs formed in another state to be foreign LLCs—that is, the LLC is foreign to the state because it wasn’t formed in that state. So, in our Massachusetts example, if you live in Massachusetts and you decide to form your LLC in Nevada because you heard it’s the best state to form an LLC, Massachusetts will consider your LLC to be a foreign LLC.

Why this is a problem. Now, if your LLC doesn’t do any business at all in Massachusetts, you probably won’t run into any problems. But most likely this won’t be the case. You might have selected Nevada to start your LLC in because there aren’t any income taxes there, but chances are, you’re still doing business in Massachusetts because, after all, that’s where you live.

And this is when it becomes a problem. Because you’re also doing business in Massachusetts, you’ll be required to register your out-of-state LLC (because you chose to start it in Nevada) in Massachusetts as a foreign LLC.

The end result?

• You have to register your LLC in both Nevada (as a domestic LLC) and in Massachusetts (as a foreign LLC).
• You’re paying two sets of filing fees.
• You have to meet two sets of annual reporting and fee requirements.
• You will need a registered agent in Nevada, as well as in Massachusetts.

But what about the tax savings? When it comes to taxes, Nevada doesn’t levy any income tax, either personal or corporate, or any franchise taxes, either. But here’s the catch: These no-tax benefits only apply to income your LLC earns in Nevada. Any money you make in Massachusetts will still be taxed under Massachusetts’ tax laws.

As you can see, in the majority of cases you’re better off starting your LLC in your home state, even if your home state has higher fees or reporting requirements or higher taxes, or is less business-friendly than any of the “best states to form an LLC” runner-ups below.

2. Delaware

Best for: Overall business-friendliness, privacy

Delaware is well known for being the most business-friendly state for corporations. According to the Delaware Division of Corporations 2021 Annual Report, 66.8% of all Fortune 500 companies are incorporated in Delaware.

Among the reasons stated in the report for Delaware’s popularity for business registrations are:

• Delaware’s General Corporation Law
• Delaware’s Court of Chancery

The report notes that Delaware’s General Corporation Law is “widely regarded as the most advanced and flexible business formation statute in the nation” while the Court of Chancery is “a unique, centuries-old business court that has written most of the modern U.S. corporation case law.”

Delaware is also an “anonymous LLC” state, meaning it’s one of the four states (Nevada, Wyoming and New Mexico are the others) that offers LLC owners stronger privacy protections.

But here’s why Delaware’s business-friendly environment isn’t a factor when it comes to forming an LLC, if Delaware isn’t your home state:

LLCs aren’t corporations. As you can see, these statistics and details clearly point to Delaware’s popularity among corporations. But LLCs aren’t corporations. This means the General Corporation Law doesn’t apply to LLCs—in fact, LLCs are covered by the state’s Limited Liability Company Act.

What about the benefits of the Court of Chancery? As the Delaware Annual Report indicates, the Court of Chancery is well known as being favorable for hearing business-related lawsuits. However, a lawsuit your LLC may be involved in will only be heard in Delaware if the suit was brought in Delaware. If your LLC isn’t actually doing business in Delaware, the chances of this are unlikely.

Isn’t anonymity a good thing? While there are advantages to the enhanced LLC privacy protections in Delaware, this protection isn’t guaranteed. For example, you’d still have to disclose your identity to banks to open an account for your LLC, and to the IRS as well.

Additionally, if you’re operating your business in your home state, you’d have to register your Delaware-formed LLC there as a foreign LLC, and chances are that filing will be a matter of public record.

Of course, if you reside in Delaware, or you operate your business solely in Delaware, then it would likely be the best state to form your LLC.

3. Wyoming

Best for: Low taxes, privacy

Wyoming doesn’t tax income, either personal or corporate, and it also doesn’t have a franchise tax. In fact, it ranks number one in the Tax Foundation’s 2022 State Business Tax Climate Index.

Additionally, as mentioned above, Wyoming is one of the four states with enhanced privacy protection for LLCs. It also allows you to appoint another person as your proxy, to vote on your behalf in matters requiring the consent of the LLC’s members.

But here’s why Wyoming’s low taxes and privacy protection aren’t a factor when it comes to forming an LLC, if Wyoming isn’t your home state:

Isn’t Wyoming’s tax regime beneficial for LLCs? While the lack of income taxes or franchise taxes would be beneficial for LLCs that do business in Wyoming, if you only formed your LLC in Wyoming and don’t actually do any business there, you won’t see any tax benefit. And even if you did do business there, as well as in your home state or other states, only the income you make in Wyoming would fall within Wyoming’s no-income-tax regime.

What about the privacy protections? As with forming an LLC in Delaware, it’s true that your LLC can take advantage of more privacy protections in Wyoming, but you’ll only have these privacy protections over your Wyoming LLC registration.

Of course, if you reside in Wyoming, or you operate your business solely in Wyoming, then it would likely be the best state to form your LLC.

4. Nevada

Best for: Low taxes, privacy

Nevada is another state that makes it onto the “best state to form LLCs” lists online. Similar to Wyoming, the state doesn’t impose any income taxes, either personal or corporate, nor does it levy franchise taxes, although it does have a gross receipts tax.

It’s also one of the states that offers more privacy protections for LLCs. However, LLCs are required to file an annual list of members and managers in Nevada. Additionally, the state has higher filing fees when compared to many other states.

But here’s why Nevada’s low-tax environment and privacy protections aren’t a factor when it comes to forming an LLC, if Nevada isn’t your home state:

About those low taxes. As is the case with Wyoming, Nevada’s low taxes won’t make much difference if your LLC is also doing business in other states, since any income your LLC earns in another state will be taxed under that state’s tax laws.

And those privacy protections? Similar to the other states that offer privacy protections, it’s only your LLC registration in Nevada that gets access to this protection. If you do business in any other state, you’ll have to register your Nevada-formed LLC as a foreign LLC, which means your LLC’s information will most likely be a matter of public record.

Of course, if you reside in Nevada, or you operate your business solely in Nevada, then it would likely be the best state to form your LLC.

5. New Mexico

Best for: Lowest fees, no annual reporting requirements, privacy

New Mexico offers a trifecta of benefits:

• The lowest LLC filing fees (along with Arizona and Mississippi)
• No annual reporting requirements
• Enhanced privacy protections

But here’s why this trifecta of benefits New Mexico offers isn’t a factor when it comes to forming an LLC, if New Mexico isn’t your home state:

Low filing fees and no reporting requirements are great, but … Despite the benefits you gain from forming your LLC in New Mexico, it’s still only beneficial to register your LLC there if it’s your home state, or if you’re doing business only in New Mexico. Otherwise, you still have to pay the initial filing fee and hire a registered agent in New Mexico.

And the privacy? Everything we’ve said about the privacy protections in Delaware, Wyoming and Nevada applies to New Mexico, too.

Of course, if you reside in New Mexico, or you operate your business solely in New Mexico, then it would likely be the best state to form your LLC.

Bottom Line

Starting an LLC in your home state is usually less of a headache and more cost-effective than forming your LLC in another state because you don’t have to deal with two sets of LLC registrations. But if you’re not certain about which state is best for your LLC, consult with an experienced business attorney who can help you make the right choice.