Which state should you form your LLC in

The rule that decides most cases

States require companies formed elsewhere to register before "transacting business" in them. The registration is called foreign qualification, and here "foreign" means out of state, not out of the country. The company files an application in the second state, pays that state's fee, appoints a registered agent there, and then files that state's annual reports and pays its taxes.

What counts as transacting business is set by each state, but having an office, employees, or the owners working day to day in a state generally does. So if you live in Georgia and run your business from home, a Wyoming LLC usually ends up registered in Georgia too. You pay two sets of fees and keep two sets of deadlines, and the Georgia rules still apply to you.

That is why the usual advice is to form in your home state. The cheaper fees elsewhere rarely survive the cost of registering twice. For how foreign qualification works and what skipping it risks, see home state or another state.

An example: a California owner

California shows the stakes clearly. Every LLC organized, registered or doing business in California owes the state an $800 minimum annual tax. An owner in California who forms in Wyoming to avoid it will usually still owe the $800, because the LLC is doing business in California, and will pay Wyoming's annual license tax on top.

When another state does make sense

• You have no base in any state. Founders living outside the US, and some US citizens living abroad, have no home state. For them the choice comes down to cost, upkeep and practical factors. See the best state for a non-resident LLC.
• You are raising venture capital. Investors generally expect a Delaware corporation. This is about Delaware's corporate law and courts, and it usually applies to corporations rather than LLCs.
• The company only holds assets. A holding LLC that owns shares or property may not be doing business in the owner's home state. Property itself, though, usually ties the company to the state where the property sits.
• You need a feature only some states offer, such as series LLCs or particular privacy rules.

What to compare between states

When you do have a real choice, compare these five things.

Yearly cost, not just the filing fee

The one-off filing fee is the smallest part of the cost over time. Annual report fees and minimum taxes range from nothing in New Mexico to $800 in California. Our LLC cost guide sets out the figures for several states.

Upkeep and deadlines

Some states want a report every year, some every two years, and New Mexico none at all. Due dates differ too. Wyoming ties the date to the month you formed, Delaware uses June 1, and Florida uses a window from January 1 to May 1. A single fixed date is easier to remember than one tied to your formation month.

State taxes

States tax where business actually happens, not where a company is registered. For an owner living in a state, that state's income tax applies to their share of profit wherever the LLC is formed. A registration state with no income tax helps only if the business has no taxable activity in any state that does have one.

What becomes public

States differ in what the formation document asks for. Wyoming's Articles of Organization ask for the name, registered agent, addresses and an organizer's signature, but not the members. Delaware's Certificate of Formation asks only for the name and registered agent. Other states want managers or members named. If privacy matters to you, check the form itself.

Practical access

Online filing, processing times and how easily you can reach the state office all matter when something needs fixing.

For where owners live, see states with no income tax.

The three names that always come up

None of these removes the need to register in your home state if you run the business from there.

Side-by-side comparisons: Wyoming vs Delaware and Wyoming vs New Mexico.

A short decision path

1. Do you live and work in a US state?

   If yes, form there unless you have a specific reason not to.

2. Is the company raising investment?

   If yes, and it will be a corporation, investors will likely ask for Delaware.

3. Do you have stock, staff or an office in a particular state?

   That state will likely require registration, so consider forming there directly.

4. None of the above?

   Compare yearly cost, deadlines and what becomes public, and pick the state that is cheapest and simplest to keep.

Where are the state-by-state guides?

Step-by-step formation guides, with each state's fees and deadlines: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Washington DC, West Virginia, Wisconsin, Wyoming.

This guide is general information. It is not tax or legal advice for your situation.