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A limited liability company (LLC), like sole proprietorships or partnerships, is an unincorporated entity with business income flowing and taxed as the owners’ personal income. But like a corporation, an LLC provides the owners with limited liability and creates a clear distinction between personal and business assets. This healthy middle-ground is one reason why many entrepreneurs choose this path, but one crucial consideration when setting one up is your business’s location.
Deciding on where you want to put up your business affects just about everything on our list of ‘10 Steps on How to Develop a Business Properly’. Your location dictates the kind of talent, business network, markets, customers, infrastructure, and resources that will be available to you. More importantly, as states have varying real estate costs, taxes, and regulations, the right location can give your LLC the benefits that are right for your business and can save you a lot of money in the long run.
Here are some of the best states for forming an LLC, and why
Delaware remains to be the most popular choice for business owners as one of the best states for forming an LLC. It has a solid reputation for being one of the most business-friendly states in the country.
Other than having low initial filing fees and franchise taxes, Delaware also doesn’t tax out-of-state business income, which means huge tax savings for Delaware LLCs even if they’re operating elsewhere. And unique among the fifty states are Delaware’s Chancery Court, which handles business matters. This, more than tax avoidance and privacy, is the reason two-thirds of Fortune 500 companies chose to incorporate in Delaware. Business disputes are heard by one of the five judges of the Court of Chancery, without a jury, and are decided under Delaware law, which is very friendly to businesses.
The strategic location of Alaska means that it receives a steady flow of income from being the only stopping point for cargo ships crossing the Arctic Circle. They also have the most de-regulated air cargo transfer rights in Anchorage, allowing for an expansive and innovative logistics chain.
In addition, they have five Foreign Trade Zones that don’t subject international-level businesses to all U.S. taxes and regulations. Moreover, setting up an LLC in Alaska means your business will get to enjoy key tax benefits. By default, your LLC’s income is taxed as personal income, which isn’t taxed in the state of Alaska. There’s also no sales tax in the state, and these two perks can translate to thousands of dollars saved in the long run. Lastly, legal fees have also been waived for registering your business as of June 2020 in light of the pandemic.
The legislature in Nevada has turned the state into a business-friendly environment since the early 1990s, especially for small businesses. Forming a Nevada LLC lets you enjoy having no state-level taxes, specifically corporate income tax, personal income tax, franchise tax on income, admissions tax, unitary tax, and estate tax or gift tax.
Nevada LLCs don’t require filing a list of the members’ names with the state, letting the owners enjoy a good deal of privacy and avoid creditors and lawsuits. Unlike other states, Nevada LLCs also don’t require filing a list of company assets, which means that there’s no record of assets being linked to you, except for filings with the IRS. Moreover, the state doesn’t require annual meetings or operating agreements. It also offers fast processing times, which can be beneficial to entrepreneurs who want their businesses to launch as quickly as possible.
Wyoming may not be as popular as Delaware and Nevada in terms of LLC formation, but it’s headed in the same direction. Like Nevada, Wyoming doesn’t have taxes on franchise and business income. The state actually allows even more privacy than Nevada because of “lifetime proxies,” through which a business owner can privately vote through a selected person who holds the stocks or shares.
In addition, it’s easy to move your existing LLC to Wyoming through a process called ‘continuance,’ something you cannot do in Nevada. Interested in more guides and analyses? Feel free to check out our Business section for more related articles, which cover advertising, marketing, sales, management, careers, industries, and more.