What is the best state to form an LLC? We have reviewed the top states for you to choose from.
A very important step for individuals when starting a business is to form an LLC that can help them realize their dream of becoming a business owner. However, this can require spending a considerable amount of money that many would like to avoid. If you’re going to file an estate that does have registration fees that are reduced, you can also reduce how much you are going to pay to register your LLC.
If you are going to run your business in one particular state, LLCs must be formed in that state, with the exception of a state like Utah. You should have an address that pertains to your business, and you can save money by doing this yourself by contacting a professional company that can assist you with the paperwork.
What Exactly Is An LLC?
If you are not sure what an LLC is, it is simply an unincorporated company. It is a business that serves as what is called a pass-through entity, allowing you to funnel profits into your business through investors and owners that will be looked at as if it is personal earnings.
It is commonly called a pass-through business because of how it is structured, yet this only pertains to businesses in the United States. 94% of businesses that do operate in the US are pass-through enterprises which is very similar to how a sole proprietorship, partnership, or even some corporations operate when it comes to income flowing through into the business.
It is beneficial to have an LLC for many reasons, primarily because of its ability to protect you from liability. You could be liable for things that your company does, or that your members do, which is why you will want to protect your assets, your personal property, especially if you are one of the many owners. Limited liability companies simply reduce the overall personal risk associated with business operations which is exactly why it’s important to consider setting up an LLC to protect your personal assets along with your business assets.
What is an LLC company?
Why Is It Important To Register A Limited Liability Company?
There are several reasons why this is an important step to take. First of all, it can help you with tax rates, the federal tax system, and any type of IRS filings that you are going to do, and each there could be higher state income taxes that you will have to pay, whereas others are going to be more reasonable. There are larger fees that you may also have to pay with regular filings in certain states which is why it is important to evaluate all of the states that offer you the opportunity to form a limited liability company, even if it is outside of your own.
There are states that do not require a business owner to be listed on the public record, which allows individuals to not be seen. There are states that are simply more pro-business than others are, prompting many businesses to move to different states in order to take advantage of these benefits.
If you want to relocate, or perhaps start a firm in a different state, LLC fees can cost you additional money but it does depend on where you want to move in order to set up your business.
Is It Better To Create Your LLC In A State That You Are Not In?
Actually, this is not the case at all. It is recommended that you do business, and also file your LLC, in the state where you are currently operating your business. There are many states that offer very low fees when filing LLCs. There are registered agents that you must also get, representing your business partners, and the owners of the LLC, that will save you money once they are appointed. However, in many cases, this is not true.
First of all, you need to realize that every state is going to be different, and if you are filing in a different state it’s going to cost you more money. You have to use the foreign LLC form which is an additional form that you will have to fill out and pay for. That cost will come directly out of your pocket. If your state does require you to fill out this form, you must maintain a registered agent in that state, along with the other one where your original one is currently located.
In order to form your LLC, there is usually a hundred dollars fee, but it can cost as much as $800 if you are in California.
In most jurisdictions, you must have a registered agent that is designated for your LLC. This is the person that is going to be in the same state that you are and it will be an individual that I will have a physical address, and they will handle all of the paperwork that will come into you that is sent by mail.
There are some jurisdictions that will require you to publish a notice of your legal papers, and others will still have you publish this on media platforms. Before you start any of these procedures, it is important to get the exact requirements that will be necessary before filing them.
If you’re going to start contacting businesses, you need to prepare an operating agreement for your LLC. There are some jurisdictions that will not demand that you do so, but it is very important to have one for internal purposes, especially if there is more than one member that will have responsibilities to fulfill.
The operating agreement is simply a document that is going to identify what people in the LLC are supposed to be doing. It can help you eliminate the potential for disagreements that may arise later on.
There are certain things that you may want to have in the operating agreement including:
Voting rights information
The percentage that each member has an interest in the company
Profit and loss information
Provisions regarding selling and purchasing
There are laws and restrictions that may affect your LLC in the state that you are filing one. You need to be aware of annual charges, and franchise taxes, that you will have to pay, along with annual reports that must be submitted representing your LLC so that it is maintained and left in good standing after it is established.
Keeping track of all of the data that you have amassed, along with dates, is also very important to have available. This will ensure that if there are any late fees, at the very least, you can see how much you owe.
Which Of The Best States For LLCs?
It really depends on the types of products that you are offering, what state you are in, and where you actually reside. An example of this would be selling surfboards if you are in the state of Idaho, which is possible, but it does have pro-business state legislation information that may not relate to this type of product.
You can set up a company in numerous states if you want to, without having to actually relocate, but you do need to know which ones are the most business-friendly. There are several factors affecting LLCs that can affect your bottom line, and this has to do with state income tax rates, annual fees, and formation fees.
Wyoming
Wyoming Is one of these states that does not have any personal income tax, nor does it have any form of corporate income tax.
Nevada
Nevada is very similar, providing a complete absence of corporate and personal income taxes which is why it is an excellent pro-business environment.
New York
If you are living in New York City, for instance, the cost of establishing your LLC is going to be much higher, coming in at over $400, plus the filing fees of $350 must also be paid. Although there is no personal income tax in the state, these are expenses that you will still have to pay.
Florida
Florida is also known as a pro-business state. This is also a state that does not have any personal income tax, and a 5.5% corporate income tax rate, which is why LLCs should be set up there. Back in July 2018, they had a GDP of $1 trillion, which makes Florida number 17 when it comes to world economies.
There is an annual fee that you will have to pay that is just under $140, and you do have to pay a $125 additional filing fee.
South Dakota
South Dakota is Similar to Nevada and Wyoming, South Dakota does not have any personal income tax, and you do not have to pay corporate income tax.
South Dakota makes forming LLCs extremely easy to do, requiring only a hundred and $50 plus $50 in annual fees.
Delaware
Delaware is often thought of as the perfect location for anyone filing a standard LLC. According to a 2012 report, nearly 64% of all businesses in 2012 were created in Delaware.
The cost is only $75 to form your LLC. This is accompanied by a $300 fixed annual tax amount. If you do generate more than $60,000 per year, you will be taxed at 616%.
Wyoming is very easy to work with when it comes to LLCs. It is the ideal state in order to form one of them. There is no personal income tax, and you do not have to pay corporate income tax, plus the sales tax is a meager 4%.
There are some disadvantages to operating in Nevada, yet it’s going to be very minimal by comparison when you consider all of the benefits that I can provide. One of these benefits is allowing you to do business and remain independent even after you sell your business.
Managing your LLC is also a good idea in the state. Wyoming does have minimalistic obligations in regard to reporting and there is absolutely no cost of operating your LLC there.
New Hampshire
New Hampshire is a pro-business state for LLCs. It has a 7.9% corporate tax rate plus no income tax.
Formation fees are $100; these are very low fees, plus you will pay a dollar payment after you file your fees every year.
Here are some of the worst states for filing an LLC
California
California is the most unfriendly of all of the states when it comes to LLCs. It cost $800 from the state franchise tax board, and if you earn more than 1/4 million dollars a year, you are subject to even more charges. Individual income taxes can be as much as 13.3%.
Iowa
Iowa does have low filing costs, which will only cost you about $50. However, the individual tax rate is 8.98% which is extremely high and certainly not favorable for an LLC, especially when there are so many other states that do not charge this at all.
New York
New York is a preeminent location for all things related to business, yet it is the worst place that you can go for taxes and the cost of operating a company. The income tax rates are 4%, yet they may go as high as 8%, which is one of the highest in the tax bracket list. Annual fees are calculated using gross revenue which can be $4500. Most organizations, however, will fall in between a few hundred dollars to $1500 each.
Louisiana
In Louisiana, personal income tax can be as high as 6%. If you do make more than $50,000, the 6% is what you will have to pay. There are also additional fees, which can be quite low, amounting to just $100 for forming your LLC and $30 for annual charges.
Vermont
Filing fees in Brabant are very low for LLCs. When you file your articles of organization, this is $125, plus you will pay $25 a year from that point forward. It has very high-income tax rates: this can be up to over 9%. Most people are taxed between 7% and 9%.
Opening A Business Bank Account
It is absolutely mandatory that you have a business bank account for your limited liability company. This is extremely important. When most business owners get started, they use their personal bank account, even for day-to-day business operations.
If you are going to create an LLC, you need to limit your personal assets and the liability that you will have within the company. When you start mixing your personal funds, with your professional activities, you are jeopardizing your ability to avoid being sued. If you go bankrupt, for instance, you can lose your business investment plus all of your other belongings.
Remember that when you form an LLC, it is separate from yourself. Your business funds, and your personal funds, need to be distinct according to the law.
Conclusion
Some people may find it difficult to start a small business. This is the first step that you need to take when setting up your business structure. Once you have formed your limited liability company, this is an excellent choice, primarily because of the liability protection that it can provide you with plus a pass-through tax structure.