Best State to Form an LLC

Every entrepreneur gets lots of advice (solicited and unsolicited) when starting a business, including what the best state to form an LLC in is. After all, some states are more friendly to business than others. Usually, though, the best state to form an LLC in is the owner’s home state and the place where they’ll ‌be conducting business. This guide explains why that’s likely the best route.

Although states like Delaware attract corporations with their business-friendly laws and tax advantages, the corporate tax perks generally don’t reach an LLC: for Delaware tax purposes an LLC is classified as a partnership unless it is classified otherwise for federal income tax purposes. Delaware’s LLC Act and its Court of Chancery, on the other hand, do apply to LLCs as well as corporations. In fact, trying to establish an LLC in one state while doing business in another can be more expensive and a bigger paperwork hassle in the long run.

What is an LLC?

A limited liability company (LLC) is a kind of business entity combining the personal liability protection of a corporation with the flexibility and tax benefits of a sole proprietorship. It’s become a popular choice for entrepreneurs who want to start a business but not risk losing their personal assets if the business is sued or goes into debt. For more information, please see “What is a Sole Proprietorship?“

Prior to the LLC, forming a corporation was the main way for a business owner to protect their personal assets, although limited partnerships had already shielded limited partners from the partnership’s obligations for decades. But corporations require more formalities and paperwork and must contend with “double taxation,” in which profits are taxed at the business level and again when they’re distributed to ‌shareholders. LLCs by default have “pass-through taxation,” in which profits avoid being taxed at the business level and are only taxed at the level of the individual LLC owners, who are called “members.” Learn more about the pass-through taxation definition here.

Domestic and Foreign LLCs

When a person forms an LLC under a particular state’s laws, it is a domestic LLC in that state. The label depends on the state of formation only, not on where the owners happen to live. A domestic LLC is mostly confined to doing business within its state of origin. So, does it really matter where an entrepreneur registers their LLC? It usually can’t, for example, open another office or other venue in another state. To do that, the company would need to register as a “foreign” LLC.

The “foreign” in a foreign LLC means an LLC formed under the laws of any jurisdiction other than the state where it is doing business, which covers both another state and another country. An entity formed overseas has to qualify as a foreign LLC in the same way one formed in a neighboring state does. For example, if an entrepreneur started an LLC for their restaurant in New Jersey and wanted to open another restaurant in New York, they’d need to register as a foreign LLC in New York by getting a foreign qualification.

A foreign qualification refers to the process an entrepreneur uses to register their company to legally do business in another state. The process varies by state, but it usually involves completing a Certificate of Authority (which is paperwork similar to Articles of Organization) in the new state and paying a state fee, usually one that’s equivalent to or more expensive than the one paid to establish an LLC in the owner’s home state.

The LLC will usually also have to get a Certificate of Good Standing or its equivalent from its home state to verify that the business is in compliance in its state of origin.

Best States to Form an LLC

Many of today’s entrepreneurs have heard how some states are much more attractive than others to businesses. For example, Delaware has attracted more than half of all Fortune 500 companies. But most of those are large corporations, and things like low corporate tax rates won’t apply to most LLCs (unless they choose to be taxed as a C corporation).

To decide whether it’s better for an entrepreneur to form an LLC in their home state versus another, it’s helpful to evaluate the pros and cons. It’s also helpful to review the benefits of forming an LLC in Delaware, Wyoming, and Nevada.

Home: The Best State to Form an LLC?

Most experts will advise that, with an exception or two, the best state for an entrepreneur to start an LLC in is the state where they live now and plan to conduct business. This section debunks some of the reasons for starting an LLC in another state.

The owner pays taxes where they make money

States like Wyoming, Florida, Nevada, South Dakota, Tennessee, Texas, and Alaska have no broad personal state income tax. Washington used to belong on that list, but its legislature has enacted an income tax on individuals with an annual adjusted gross income of $1,000,000 or more, and the state also levies a capital gains excise tax and a gross receipts business and occupation tax (as of August 2026). Check your state’s current rules before assuming there is no state-level tax to pay. If an entrepreneur is living in one of those states and starts an LLC, it’s especially nice because not only will they not pay state income taxes at the business level, but they’ll also avoid them on their individual tax return. If an entrepreneur doesn’t already live in one of these states, they might think it’s wise to start their LLC there and avoid those state taxes.

But remember that forming an LLC in another state does not by itself move where the tax is owed: a business owner generally pays income tax where the business is actually conducted. Be careful, though, because several states also treat a business as taxable there once its in-state sales pass a set threshold, even with no office or staff in the state, so where the customers are can create a filing obligation on its own. Check the doing business and nexus rules in every state where you have significant sales. For example, if someone lives in California and plans to operate their business there, but they start their LLC in Texas, they’re still going to have to pay California state income taxes because they made the money in California.

But what if someone’s running an online business and they have customers from around the globe? Again, an entrepreneur can’t circumvent paying taxes this way. The business owner would still pay state income taxes based on where the business is operating, not simply where the LLC was formed.

An area of law that’s still evolving around this is how online businesses pay sales taxes and to whom. If a business owner has established what’s called a sales tax nexus in a particular state, they’ll be responsible for paying sales tax to that state.

Double the Paperwork

If a person is establishing their LLC in another state but still planning to conduct business in their home state, they’ll have to register as a foreign LLC in their home state. That’s essentially doubling the paperwork.

Say a person lives in Washington and wants to operate their business there, but they decide to form the LLC in Nevada to take advantage of the friendlier business climate. First, they’d need to complete the Nevada LLC Articles of Organization for an LLC and any other associated paperwork. Then, to do business in their home state, they’d be required to complete a Washington Foreign Registration Statement to conduct business there.

But that’s not all. The business owner will need to appoint and maintain a registered agent (for more information, please see the “What is a registered agent?” page) in both states, and a registered agent must have a physical street address in each state. If the owner opts to use a registered agent service for this purpose, it’ll be an extra ongoing cost to budget for. They’d also have to maintain other compliance requirements, such as filing an annual report for both states.

Of course, the more states an LLC is registered in, the more compliance requirements it will have. And that means more opportunities for forgetting or making errors that could cause the state to fine the LLC or penalize it in some other way (maybe even dissolving the business).

Double the Expense

Not only will being registered in multiple states mean more paperwork, but it’ll also mean more fees. States charge a fee for filing LLC paperwork, and they also charge a fee to LLCs for registering as a foreign LLC. As of August 2026 those fees run from roughly $35 to $750 depending on the state, with foreign registration often costing more than domestic formation, so check the current fee schedule for every state you file in.

In most cases, the business’s ongoing expenses will also increase. Most states charge a fee for filing an annual or biennial report, and the amounts vary widely, so check the current fee schedule and deadline published by each state’s business filing office. The business will have to pay such a fee in both the state in which it first registered and in each state where it’s registered as a foreign LLC. Plus, there may be other ongoing fees in the states where the company is registered, such as a general business license fee.

Are corporate tax rates a factor?

When a state boasts about its low corporate tax rate, some entrepreneurs need to remember that they’re not starting a corporation. As mentioned above, an LLC has pass-through taxation by default, which means that it wouldn’t pay corporate taxes if the state taxes the LLC the same way the federal government does (which most states do). So, if an entrepreneur is looking at state income taxes as a deciding factor in where to start their LLC, they’ll likely be more interested in the state’s personal income tax rate ‌than its corporate tax rate.

The corporate tax rate can be a factor if the owner chooses to have their LLC taxed as a corporation, which is an option for many LLCs. An entrepreneur can apply for their LLC to be taxed as a C corporation (the default form of a corporation) or an S corporation (please see the “What is an S Corp?” page for more information).

An S corporation also has pass-through taxation, but it may be able to save some LLC members on self-employment taxes. A C corporation does have double taxation and would pay corporate taxes. Larger LLCs sometimes find that, once all the numbers are crunched, they can actually lower their overall tax burden with the tax deductions available to C corporations. If that’s the case with an LLC, the state’s corporate tax rate will be a bigger factor in the owner’s decision.

When is the home state not the best place to form an LLC?

Because of the nature of real estate, it often makes practical sense to form an LLC in the state where the property sits. This is planning guidance rather than a legal rule: whether an out-of-state LLC actually has to register in that state turns on what it does there, since some states expressly exclude passive activities such as holding a mortgage, lien, or other security interest in property from what counts as transacting business. Check that state’s foreign qualification statute before deciding. After all, whether an entrepreneur is selling, buying, renting, etc., they’re going to be making money from the real estate itself, and so that’s where they’d be conducting business.

There also may be cases where an LLC member living in one state does all the LLC’s business in another state, in which case moving the LLC to another state may make sense. Even so, they’d have to take special care not to conduct any business operations in their home state.

In all of these scenarios, it’s best to consult a business attorney with some experience in this field.

With all the above being said, some states are especially attractive to businesses in general. But it is usually recommended for entrepreneurs to form an LLC in the state where they live and plan to do business.

Of course, if an entrepreneur lives in any of the following states, that’s probably the best place to start their LLC. But if not, an entrepreneur might consider the above points before diving in.

Delaware

Delaware is often hyped as the most business-friendly state in the nation, one with laws favoring business owners and more privacy protections for those owners. But even Delaware’s own website says that there are a lot of myths around the state’s friendliness to business. This section takes a realistic look at the benefits of forming an LLC in Delaware.

Court of Chancery

Delaware’s Court of Chancery is a centuries-old non-jury court that’s known for catering to businesses. The lack of a jury generally means that faster decisions are made. According to the Court of Chancery’s website, “The Delaware Court of Chancery is widely recognized as the nation’s preeminent forum for the determination of disputes involving the internal affairs of the thousands upon thousands of Delaware corporations and other business entities through which a vast amount of the world’s commercial affairs is conducted. Its unique competence in and exposure to issues of business law are unmatched.”

That all sounds good for an entrepreneur with a Delaware business doing business in Delaware. But the Court of Chancery is a Delaware court, so any case has to be brought in Delaware. If an entrepreneur has only formed their business in Delaware and isn’t doing business there, ordinary contract and injury lawsuits brought against them will usually be tried where the business actually operates. Disputes about the LLC itself are different: the Delaware LLC Act allows an action to interpret, apply, or enforce an LLC agreement to be brought in the Court of Chancery, so internal disputes among members and managers of a Delaware LLC can still be heard there wherever the company trades.

Anonymity

A handful of states do not collect members’ or managers’ names on LLC filings, which is why LLCs formed there are sometimes described as “anonymous LLCs.” There is no official list confirming exactly which states qualify, and some states require a public list naming the managers or managing members. This added privacy protection is appealing to many entrepreneurs, but it’s important to be aware of its limitations. See the anonymous LLC definition guide for more information.

Remember, a business owner can’t hide from the IRS or other tax authorities. The IRS and the Delaware Division of Revenue collect information about a company’s owners, directors, officers, and other responsible parties in several ways, including tax returns, applications for tax ID numbers, and financial account holding reports.

In fact, Delaware’s website claims, “Delaware is not a secrecy haven, any more than any other state or the United States itself. Indeed, Delaware has done more than most states to ensure proper transparency.” 

Consider, too, that some states ask for the names and other details of an LLC’s members or managers when it registers as a foreign LLC, while others ask only for a registered agent and an authorized signer. Check the foreign registration form for each state before counting on any privacy the formation state offers.

Laws Favoring Corporations

Delaware does attract large corporations, and it’s true that more than half of all Fortune 500 companies have been formed there. But as stated earlier, those companies are corporations, not LLCs. Corporate tax breaks don’t help LLCs.

Something else to consider is that Delaware charges a $400 annual tax, due on or before June 1, that applies to all domestic and foreign LLCs, limited partnerships, and general partnerships, with a further $100 for each registered series (amount as of August 2026). Entrepreneurs can form a limited partnership in Delaware or other states if that’s a better fit for the business.

Nevada

Nevada has neither personal nor corporate state income taxes, but that is not the same as no state business tax: Nevada imposes a Commerce Tax on businesses with Nevada gross revenue above $4 million per fiscal year (as of August 2026). It’s also often counted among the states that allow anonymous LLCs, but the privacy is limited: LLCs there must still file an initial or annual list of managers or managing members, a filing whose purpose is to name the people running the company, so check what your state puts on the public record.

However, the same reasons for not forming in Delaware mostly apply to Nevada, too. If a person is not doing business in Nevada, their LLC won’t be able to take advantage of their lack of taxes. As for privacy, the same limitations apply.

Another thing to consider is the cost of forming a Nevada LLC. An entrepreneur can expect to pay $75 for the Articles of Organization, but there’s also the Nevada Initial/Annual List of Managers or Managing Members and State Business License Application. The list carries a $150 fee, and the Nevada State Business License is $200 more. Altogether, those three filings come to $425 to start a Nevada LLC, and any online payment surcharge would be on top of that. These amounts come from the Nevada Secretary of State fee schedule as of August 2026, so confirm the current figures there before budgeting.

Entrepreneurs also need to think about the ongoing fees. Nevada’s business license must be renewed annually for $200 for LLCs, according to the Nevada Secretary of State fee schedule; confirm the current amount there before renewing (as of August 2026). Plus, the Nevada annual list is $150 every year for LLCs under NRS Chapter 86. So, a Nevada LLC owner will be paying at least $350 every year in state annual fees. That covers state filings only: it excludes first year formation costs and any city or county business license.

Wyoming

If someone hates taxes, they’re going to love Wyoming. The state has no personal or corporate income tax and levies nothing called a franchise tax, but LLCs there do owe an annual report license tax of $60, or $0.0002 per dollar of in-state assets if that comes to more (as of August 2026), so check the current fee schedule before budgeting. As mentioned, it’s also often counted among the states that allow anonymous LLCs. Wyoming filing fees are also modest at $100 for the Wyoming Articles of Organization (fee schedule effective July 1, 2026).

Again, though, there are limitations to LLC privacy, and the owner pays taxes where they make money. If someone’s living and doing business in Wyoming, that’s great. But if someone only formed their LLC in Wyoming but transacts business elsewhere, they won’t see much tax savings. Refer to the specific LLC taxes by state to see the detailed breakdown (or see the franchise taxes definition guide).

New Mexico

New Mexico does have personal state income tax as well as a gross receipts tax on LLCs, but its filing fee is among the lowest in the country. Check the current amount on the New Mexico Secretary of State fee schedule before filing (as of August 2026). Another unusual benefit is that New Mexico does not require LLCs to file an annual report with the Secretary of State, which means less paperwork and no annual report fee. Confirm the current requirement on the New Mexico Secretary of State’s Business Services pages before relying on it, and remember that an LLC with New Mexico gross receipts tax nexus still has to register with Taxation and Revenue and file gross receipts tax returns. And it’s often counted among the states that allow anonymous LLCs.

Despite these perks, though, if a person isn’t planning to do business in New Mexico, forming an LLC in New Mexico usually won’t benefit them much. The business owner will still need to pay the filing fees for whatever state they’re doing business in.

ZenBusiness can help

Starting a business could be the fulfillment of a lifelong dream, but the paperwork and red tape can make it intimidating. When an entrepreneur is ready to start their LLC, ZenBusiness is ready to help. Starting at $0 plus state fees, ZenBusiness can help anyone form an LLC in all 50 states and the District of Columbia.

Plus, ZenBusiness offers a host of other services to help entrepreneurs run and grow their businesses, covering everything from registered agent services to the ZenBusiness Money Pro app, which helps keep business finances organized.