This is the perfect article to read if you want to know the best state to form an LLC and exactly why.

It reveals the best states to form an LLC in the United States and why each rocks. It also reveals the worst states to avoid when it comes to forming an LLC.

When it comes to the business world and economics in the United States of America, or globally for that matter, many think that the true driving financial force behind the American economy is big business.

Many, most likely, would mention major corporations like Coca-Cola, Microsoft, Apple, etc.

Although business is a significant part of the robust economy experienced in the United States equally important, if not more important, is small business.


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The reason why small business is so important is that there are more than 27 million small businesses in operation in America on any given day.

The revenue that the small business operator generates is close to 50% of the gross domestic product.

Also See: Secret Tips That Will Help You Become a Very Successful Businessman.

 

Importance of Forming an LLC

Given the financial strength of small businesses in America and their autonomy, one may wish to join this powerful financial segment of any given community. There are variety advantages to owning one’s own business.

Some of those advantages include the thrill of taking your own talents and vision and successfully earning a living through a passion that resonates deep within you.

Another advantage is that one does not work for anybody else. They are their own boss.

The benefits to this are that they set their own schedule and, quite frankly, don’t have to answer to any individual who may be labeled as their boss.

Obviously, before taking the next huge step into starting one’s own business, there are a number of legal hoops that need to be jumped through. One of those hoops is establishing your business as an LLC.

LLC means Limited Liability Company and is a formal legal structure under which your company operates.

The basic reason why small business owners choose to become an LLC is to limit their liability from others and protect their own personal assets.

Obviously, there’s more to starting a business and certainly more to being created as an LLC, but for the purpose of this writing we will talk about LLCs as it relates to the best state in America to set up an LLC.

 

3 Best States to Form an LLC and Why Each Rocks

If considering the formation of a small business and working towards earning your first million dollars, part of the process is to form an LLC.

This is a legal process that involves the operating agreement of the company and its formation along with other legal factors.

When an individual is looking at forming an LLC, generally their first choice or thinking is to form the LLC within the state that they reside.

Although this is common it is not necessarily the optimum route to go.

Specifically, it is important to know that an LLC for your company’s operation and its business framework does not need to be filed within the state that you reside. Consequently, you have 50 choices.

The following are three state choices that rise to the top for an LLC formation for business.

The factors that rate each of these states are strictly based on business practices and tax rates rather than the quality of life.

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1. The First State (Delaware)

Well, we might as well start out with the most popular state discovered by entrepreneurs to file as an LLC for their business.

What is that state, you ask?

Not only does it happen to be the first state when it comes to LLC formations, but also has the distinguished state motto of being the first state.

Delaware has a very powerful presence in the business community due to its being very friendly and accommodating.

This accommodation presents to the filing company a very fast process and provides significant increased protection for the owners of the LLC.

Added to the business friendly process is the filing fee of only $90 but counters that with an annual filing report of $300.

Particular to Delaware is also a legal court system called the Chancery Court.

This particular legal vein of the court system is specifically set up to handle matters associated with business dealings.

Added to the conduciveness of this judicial system is that the court seats judges on the judicial bench that are well experienced in business matters.

The court also has a reputation of fast tracking the various business cases. All of this equates to a fair and often positive outcome for judicial business related matters.

Finally, Delaware, realizing the importance of business for the economic thriving of the state, affords many additional protections in favor of business holders and stakeholders.

This particularly comes into play when it involves creditors suing for the assets of a bankrupt company or individual members being sued.

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Best States to Form an LLC

 

2. The Cowboy State (Wyoming)

Let us mount up and go to one of the states that can be considered as one of the top three for formulating or structuring an LLC.

That state is the cowboy state or Wyoming.

The reason why Wyoming is a popular state for registering as an LLC is due to the costs associated with filing an LLC and the various tax structures for a company.

Specifically, the filing fee for an LLC in Wyoming is $100 and to file your annual report for the company’s financial dealings is at a cost of $50.

Added to the advantages of filing an LLC in Wyoming is the tax structure that Wyoming has adopted.

That tax structure is that there are no corporate or personal income taxes.

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In addition, as part of the LLC liability protection, Wyoming has enacted the strongest laws as it relates to protecting an individual’s assets amongst the other 49 states in the union.

As an added dimension to the favorability of Wyoming as your registering state is that red tape for corporations is minimal.

This is keenly seen in that most states require the presence of the individual in the state in which they are filing.

Wyoming has untangled this red tape process and allows for registering company to use Internet resources.

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3. Silver State (Nevada)

It certainly is not a gamble to consider the silver state as your choice in registering your company as an LLC.

That is because the state of Nevada is very business friendly. As such the growth and beginnings of new business there are no taxes placed on corporate income or personal income or franchise.

As part of the LLC mandates, the state of Nevada does not require the LLC to conduct yearly meetings or formulate an operating agreement for operations.

Also, the state of Nevada has an understanding with the Internal Revenue Service in that they have not entered into an agreement with IRS regarding information sharing.

The sure-bet bottom line is that this non-existing agreement provides greater privacy for the individual company or corporation.

The downside to filing as an LLC in Nevada is that the filing fees are continuing to rise.

To file as an LLC in Nevada recently cost $425 with the annual costs being assessed at $350. It would appear that these costs are continually rising.

Related: Advantages and Disadvantages of a Corporation.

 

3 Worst States to Form an LLC and Why

Perhaps it would be informative to round out this article by not only mentioning the top three states but also mentioning the three worst states to formulate policy.

Those states, in no particular order, are:

1. California

2. Iowa

3. New York

For the same reasons that the other three states are in the top three the states rank as the low three because of their franchise tax, high income tax and other additional fees when a certain threshold is reached.

What differentiates Iowa from the obvious choices of California and New York is that Iowa, even though the filing fee is very reasonable, has an income tax at an 8.98% level.

 

LLC Horror Story

LLCs are generally a smart way to structure one’s small business. However, being an LLC does occasionally have a downside.

For example, as part of structuring an LLC, the owner or other business partners may choose to formulate an operating agreement.

In some states this operating agreement is required while in other states it is not.

In one state, an LLC was set up by the main player of the company. His ownership portion of the company was 95% and a 5% portion of ownership was given to a critical employee.

As a reflection of the old axiom, one can be penny wise and nickel foolish, it was decided to have an online legal resource site draw together the terms of the operating agreement.

Well as these things sometimes happen, there was a dispute between the two and the 5% owner left the company but still maintain that small percentage of ownership.

And as fate would have it, a golden opportunity arose where the 95% owner had an opportunity to sell the business for a considerable amount of money.

Because the operating agreement was not properly formulated, the 5% owner, in an act of vengeance and spite, drug his feet which threw a monkey wrench into the deal.

Subsequently, the deal went through but the 5% owner was able to wheel and deal himself to a more lucrative outcome for himself in the selling of the company.

 

You Can Do It

There are various components that comprise an LLC.

Some of those key elements include the operating agreement, voting, limits on liability, being indemnified, the keeping of records, management, etc.

It is an involved process and generally requires some sort of legal help or advisement.

However, even before getting to this point of filing paperwork as an LLC is addressing the typical litany of W’s or who, what, when, where, why, and how.

Of course, before the other questions can be addressed, the first W that needs to be answered is the where.

Typically the individual starting an LLC will choose their own home state to file this legal document but this doesn’t necessarily have to be the case.

Therefore, by doing one’s research and weighing the pros and cons they may choose to file as an LLC in one of the other 49 states in America.

It would appear that each of the states have their own requirements as to what needs to be filed.

Another important caveat is the financial obligations of the LLC company in relationship to the state’s legal demands in forming the company.

The other added dimension and most likely the important of all is the current and future financial health of the company.

States differ as far as taxes on both the company and state tax assessed. When businesses operate and sales are made, taxes are paid to the state of record.

 

Conclusion

Filing paperwork and forming an LLC is the critical foundation for any limited liability company.

It is basically the cornerstone of business operations and outlines the business model plan for conducting business.

The primary advantage of forming an LLC is that it protects the assets of the members and managers and limits their liability.

However, there are some LLCs that assess extra fees and in some states there are certain professional groups that are not allowed to form an LLC.

Some of those professional groups could be doctors or dentists and are not able to limit their liability through an LLC.

Therefore, it is important that the group or company desiring to legally list themselves as an LLC choose the most conducive state to their business needs.

Those business needs are include but are not limited to fees paid and taxes assessed.

Also, it important to understand that the formulation of some LLC’s is not allowable under certain state’s business codes and regulations.

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Apart from being a seasoned Personal Finance expert who has written for top publications around the world, I bring significant personal financial experience. Long story short... through bad financial choices... I found myself $100,000 plus in debt. I was able to dissolve this indebtedness and regain financial solvency. This financial turn around was accomplished through reading, studying and implementing a financial plan. My financial plan included paying down my debt through budgeting, being cognizant of where my financial resources were being spent, changing my attitude about money and understanding the binding chains of the improper use of credit. Today, and for 10 years, I have been debt free and have invested wisely to enjoy my current retirement. This is allowing me to write to help others make, save and grow money wisely!