What is an LLC?
LLC stands for Limited Liability Company and was first accepted as an authorized legal business entity in the late 1970s in Wyoming. Since then, it is recognized in every state and has become one the most popular business structures for SMBs primarily because of its liability protection. It offers business owners the simplicity of a general partnership in terms of formalities and taxes, yet with the personal protection and shield against company debts and liabilities of a corporation. Otherwise, you could be held personally responsible for the mistakes your business might make.
Another huge benefit of forming an LLC is its flexibility. You get to choose whether you want to be managed as a partnership (member-managed LLC) or as a corporation (manager-managed LLC) with all its formalities, such as a board of directors and annual meetings, or just forgo those completely. You also get to elect how your LLC will be taxed by the IRS; as a sole proprietorship (single-member LLC), as a partnership (multi-member LLC) or as a corporation. Filing your LLC as an S corporation has some great tax advantages as it allows business owners to split their income between their distribution as a partner and status as an employee. This type of LLC tax structure can result in paying less self-employment tax and leaving more money in your pocket.
LLCs can also be turned into a corporation down the road if the business takes that direction. With the simplicity, liability protection, and flexibility of an LLC, it is no wonder why so many business owners select this type of business entity when forming a company.
Why use legal services to form my LLC?
Online legal service providers offer a fast and cost-effective solution to forming a business. These filing services and industry experts offer all the services you would need to start and run your business, such as preparation and filing of LLCs and corporations, business licenses, legal documents, compliance, EIN, and registered agent services, all in one place, for an affordable price.
With online legal service providers, forming your business is a quick, straightforward, and smooth process. All you need to do to get started is select one of the top business formation services above which will take you to their website. Then pick the business entity you are interested in, whether it be an LLC, s-corporation, or c-corporation, and enter the state you wish to register your business in. You will then be prompted to enter your desired business name, select the type of business package you want to proceed with and you’re all set.
Forming your LLC or corporation is no longer a complicated, lengthy, and expensive process when you leave it to these industry professionals to do the work for you.
Professional services can also help you expedite your LLC registration. Same day LLC formation is available in many states. If it’s important for you to start your business fast we recommend the service offered by IncFile.
Domestic LLC vs. Foreign LLC
A domestic LLC means you file in your state of residence and you do business mainly in that state. This is the most common and cost-effective scenario.
A foreign LLC is used when you have filed papers in one state, and you have a physical facility or storefront in another state. In order to do business in that second state, you need to file a foreign LLC. Foreign LLCs tend to cost more and require a registered agent. Conversely, if you file for an LLC in another state for some reason, and you do business in your home state, you will have to file a foreign LLC in your home state in order to do business there.
Recommended state to form an LLC
While you can file in any state you wish, bear in mind the extra fees and paperwork required when you file an LLC outside the state that you do business. Even if you are a freelance writer with clients around the world, you are going to be taxed in the place where you are doing business. Even if you travel a lot, pick a state where you live or have the most connection – where you own a house, where you have your driver’s license, or where you pay your state taxes. If your business is more complicated and you have offices in two states, pick one for the LLC and use the other one as a foreign LLC.
Does my LLC have to be registered in the state I live in?
No, but that is most often the clear choice. If you do business in one state or have a physical address or store, filing in the state you reside in has advantages. Filing out of state requires a registered agent as well as filing as a “foreign LLC” for each state you do business in. It often saves a lot of money to file in your state of residence. However, if you do not have a physical facility or storefront or are planning on conducting most of your business out of state, you can explore filing an LLC in another state.
Tax implications
Taxes are paid where money is made. It doesn’t matter if you file in Delaware and do business in Nebraska, taxes will need to be paid in Nebraska. You also still need to pay fees in Delaware, as that is where you originally filed paperwork. Filing in more than one state makes things a little trickier. A registered agent represents your interests in other states and helps keep all of the filings up to date.
Delaware LLC
Over 50% of U.S. publicly traded corporations are incorporated in Delaware and many LLCs are filed there as well. Delaware, known as a tax haven and has a reputation as the most business-friendly state in the U.S, is a very popular choice because it does not tax out-of-state income, it has low filing fees and it has a special Chancery Court that handles business matters. That being said, there is still the matter of an extra state’s filing fees and hiring a registered agent. There are more advantages for corporations to file in Delaware than LLCs, but it depends on your particular situation. Remember the domestic vs foreign LLC requirements as you will be paying fees in both states if you do not reside in Delaware. LLC Annual state fee in Delaware (DE): $300 (every year). State filling fee in Delaware (DE): $100.
It’s important to remember – Taxes are paid where money is made! meaning, if you form your LLC in Delaware but make your money in Texas, you will still need to pay taxes in Texas.
Nevada LLC
Nevada is also considered a very attractive state to form an LLC or corporation because of its favorable tax benefits. It offers businesses many tax advantages, including no state income tax as well as no personal income tax or franchise tax for LLCs and corporations. Nevada has some advantages, including not taxing business income, no franchise taxes, and low fees. Nevada also has greater privacy laws that allow you to operate anonymously in public filings and restrict information that is shared with the IRS. If you don’t live in Nevada, you will still have to follow all of the rules required as a foreign LLC. LLC Annual/Biennial state fee in Nevada (NV): $350 (every year). State filling fee in Nevada (DE): $425.
Wyoming LLC
Wyoming has similar advantages to Nevada with no business income or franchise taxes, as well as a “lifetime proxy”, which allows some level of anonymity in voting and disclosure of your identity. As with all other alternative filing states, you may need to file a foreign LLC where you do business if it’s not in Wyoming. LLC Annual/Biennial state fee in Wyoming (WY): $50 minimum (every year). State filling fee in Wyoming (WY): $102.
Tax implications
Taxes are paid where money is made. It doesn’t matter if you file in Delaware and do business in Nebraska, taxes will need to be paid in Nebraska. You also still need to pay fees in Delaware, as that is where you originally filed paperwork. Filing in more than one state makes things a little trickier. A registered agent represents your interests in other states and helps keep all of the filings up to date.