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Best State to Form LLC for Online Business

By Alison K Plaut

Published on 8 Nov 2023 5 min read

Starting an LLC can protect your online business from liability and offer excellent tax benefits while getting the company off the ground. Choosing the best state to form a limited liability company (LLC) requires careful research if you want to optimize possible advantages. Read on to understand how to choose the best state to form an LLC for online businesses and get started to launch your company. 

Why Should You Consider Forming an LLC for Your Online Business?

Forming an LLC for your online business offers many benefits and is fast and simple to complete. Most states allow you to apply for an LLC online. Here’s an overview of why you should consider forming an LLC for your online business:

• Personal liability protection
• Low-cost
• Easy to form
• Flexible taxation
• Ownership flexibility
• Management flexibility
• Distribution flexibility
• Add business credibility
• Can protect owners’ privacy

Best States to Form an LLC for Your Online Business

The best state to form an LLC for your online business depends on your business goals and specific needs. Here’s an overview of why you should consider your home state and a few of the most popular states. 

Your Home State

Your home state is the best state to form an LLC for your online business as it simplifies administration. You can act as the registered agent if you’re available during regular business hours. Forming your LLC in your home state is usually the best option for most business owners. It can be both cost-effective and simple to set up. 

For example, if you form an LLC in Delaware but you don’t live there, you’ll be required to register that LLC in your home state as a Foreign LLC to do business in your home state. The states other than your home state promoting formation usually stand to benefit financially from the LLC formation. 

Delaware

Delaware is one of the most business-friendly states. Some business owners opt to form an LLC in Delaware if they plan to convert the LLC to a C-corp. There’s a certain perceived prestige to say your company is from Delaware. Additionally, Delaware also doesn’t tax out-of-state income, making it an attractive option for online businesses. 

The main reason online business owners choose Delaware to form an LLC is the increased privacy protection and better legal protection than other states. The Delaware Court of Chancery is specifically set up to deal with corporate and business legal issues. And Delaware is an anonymous LLC state, allowing business owners to protect their identity. Find more about Delaware LLC’s pros and cons here. 

Wyoming 

Wyoming offers low tax rates, making it an attractive option to form an LLC for your online business. There’s no income tax or franchise tax. Sales tax is also lower than the national average at just 4%. You’ll also only have to pay $60 as annual reporting fees, making it an affordable location to start an LLC. 

Another advantage of forming an LLC in Wyoming is that the state allows LLC owners to remain anonymous on the public record. This is a benefit for business owners who want to remain private or don’t want the business to be associated with their name. Find more about Wyoming LLC’s pros and cons here. 

Nevada

If privacy is your priority, Nevada is the best state to form an LLC to remain anonymous. Nevada allows LLC owners to remain anonymous in public filings and does not have an information-sharing agreement with the IRS, further protecting your privacy.

Nevada also has no business income tax, capital gains tax, franchise tax, or inheritance tax. It doesn’t require the submission of an LLC operating agreement. Nevada also has strong corporate veil laws that protect individuals from company liability.

New Mexico

New Mexico has some of the lowest state filing fees in the country, with no annual renewal fees or annual reporting requirements. You need to pay just $50 to create an LLC for your online business in New Mexico. It is also an anonymous LLC state, allowing business owners to protect their privacy. Between low fees and privacy protection, New Mexico offers a favorable business environment to form an LLC for an online business. 

What to Consider When Choosing the Best State for LLC for Your Online Business

Should you form an LLC in a state other than your home state? Mostly no! However, there are key factors you’ll want to weigh about LLC formation to decide which state is the best fit for your online business. 

Domestic LLC or Foreign LLC

Choosing the right type of LLC is critical when considering the best state to form an LLC for your business. A domestic LLC is formed in the state where it operates. A foreign LLC is formed in one state and registered to do business in another. If you form an LLC in a state other than your home state, you’ll need to register the business in your home state as a foreign LLC to conduct business there. This can add costs and hassle that may not be worth the benefits. 

Formation and Annual Filing Fees

Fees are important when considering the best state to form an LLC for your online business, especially while you’re just starting. LLC annual filing fees can be as much as $800 (in California) or $300 to $350 in several other states, including Delaware and Nevada. When you’re building your business, you’ll want to consider those costs. If you choose to operate as a foreign LLC in another state, you may have to pay the annual filing fees in both states. 

Tax Rates and Regulations

Tax rates and regulations are important when considering the best state to form an LLC for your online business. Taxes can have a significant impact on your bottom line. Consider corporate tax, franchise tax, sales tax, and capital gains tax to choose the most favorable business climate for your company. 

Legal and Liability Protection

Business owners primarily form LLCs for legal and liability protection. Different states offer varying levels of protection to business owners. It’s essential to consider the liability protection structure and privacy protection when considering the best state to form an LLC for your online business.

Choose doola for Fast LLC Formation

For most business owners, launching a business and forming an LLC in your home state is the simplest solution. However, if you need additional privacy protection, stronger corporate protection, or favorable tax treatment, the four states listed above offer excellent possibilities. 

Ready to form an LLC? doola formation services can help. Get doola for fast, professional LLC formation services in all 50 states. doola will form your company and get your EIN so you can focus on getting the online business off the ground.

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