Deciding where to register a limited liability company (LLC) or foreign LLC requires the consideration of various factors. These include taxes, workforce availability, business environment, and regulatory burden among others.
Limited Liability Company
For many entrepreneurs, the best business entity structure is the LLC. That is because of the many advantages it offers.
The LLC has two main features. First, it offers personal asset protection to the business owners. Second, it allows pass-through taxation treatment.
Domestic Versus Foreign
Before forming an LLC, it is important to understand domestic and foreign LLCs. The difference between these two lies in the place where the company is organized.
The place where the LLC is formed will be its home state. In that state, it is considered a domestic LLC. In case the LLC decides to do business in other states, it will have to register as a foreign LLC in each of those states. For instance, a company organized its business as an LLC in Nevada. It will be a domestic LLC in Nevada. If it transacts in Wyoming too, then it will have to register as a foreign entity in Wyoming.
Top 5 States to Consider
The laws governing LLCs are different from state to state. That means the requirements, obligations, fees, and incentives will vary. Some states may offer more advantages, so it is best to carefully weigh all of your options before filing.
The first thing that the company has to figure out is its home state. In most cases, entrepreneurs choose their place of residence.
If the company plans on doing business in other states, then it will have to register as a foreign LLC. Doing business refers to the following activities:
- Hiring an employee who resides in the state
- Purchasing a property in the state
- Opening an office or facility in the state
- Selling products or offering services in the state
So which states are the best when it comes to transacting business? Here are 5 places to consider:
This state is a popular choice for many entrepreneurs. That is because it has one of the most business-friendly environments in the country. It also does not tax out-of-state income, so only those earned within its jurisdiction will be taxed. Franchise taxes and initial filing fees are affordable as well.
Additionally, Delaware has a Chancery Court that handles all matters related to businesses. That means business disputes will be handled more quickly in Delaware compared to the process in other states. The judges are also well-versed in various business matters.
This state is known for having a pro-business environment. It does not impose taxes on business income, inheritance, and capital gains. Additionally, it does not have franchise, corporate income, and personal income taxes. However, it is important to note that the state imposes a commerce tax for business entities with a gross revenue exceeding $4 million per taxable year. The rates vary depending on the industry.
The state also offers privacy for LLC members. It does not require the submission of the names and addresses of the company owners for public filings.
The state does not have franchise tax, capital gains, and business income taxes as well. It does not have any citizenship requirements for foreign business entities. It allows anonymity as it does not require the disclosure of the names of LLC members.
Another factor that makes Wyoming an appealing option for a foreign LLC is the Lifetime Proxy. The state allows someone else to hold shares and vote on behalf of an owner.
Florida is also known to be a business-friendly state. There are no state income taxes. The state offers anonymity and does not require the disclosure of the LLC members.
What’s more, Florida offers various programs for business entities operating there. There are tax incentives for businesses that qualify for certain programs. The cost of business expenses, such as labor, materials, and land, is low.
Like the previous states, South Dakota does not impose state personal and corporate income taxes. There are no personal property, inheritance, and business inventory taxes. Additionally, the state offers various tax credits and incentives to help business entities focus on growth. For example, motor vehicles will not be subject to sales taxes. There are also other business incentives and programs to help companies operating in the state.
Getting Started with a Foreign LLC
Registering as a foreign LLC is a requirement to ensure the legality of business operations. Finding the best states to do business will be beneficial to the company. However, it is important to ensure compliance with the state process. To learn more about foreign qualifications or get help in registering a business in other states, contact a reliable third-party organization like DoMyLLC.