• The Best State to Form a Limited Liability Company
• Best State to Form an LLC
• The Benefits & Drawbacks of Forming an LLC
• Benefits
• Drawbacks
• State-by-State LLC Differences
• Filing Reports
• Filing Fees
• Ongoing Fees
• Reporting Deadlines
• Operation Agreements and Publicity Requirements
• Best State to Start an LLC

The Best State to Form a Limited Liability Company

Best State to Form an LLC

If you or your friends are business owners, a small business owner, an online business, or a general entrepreneur, you are a step in the right direction! Your drive is unmatched, your work ethic is second-to-none, and your ambitions are one-of-a-kind. The reason that you are here is to start your LLC, or a business of your own, which is the epitome of excellent aspirations. You didn’t land on this article because you want to start any type of business; but more specifically, a special type of business entity called a Limited Liability Company (LLC).

An LLC is a specific form of a private company. The business structure combines a lower tax rate (like a sole-proprietorship or a partnership) while having less liability (like a corporation). In general, forming an LLC takes the most beneficial of the three business entities. Before we dig deeper into the best state to form an LLC, the elements of the LLC have to be defined. It is crucial to know what factors make an LLC better (or worse) from the first state to the next.

The Benefits & Drawbacks of Forming an LLC

The factors to form your LLC are vital for the rankings of the best states to form an LLC. Whether you are new to the business world, seasoned with some experience, or are an expert business person, the LLC ranks are dependent on a wide range of factors.

From state-to-state, there are both positives and negatives of each state. Some states will offer more benefits than others, so it is best to know the full picture. Listed below are both sides of the spectrum of forming an LLC.

Benefits

The LLC is a relatively-newer business entity. This means that LLCs take the best from each type of business entity. Below are some of the prominent reasons to operate your small business as an LLC.

Taxes

Taxes will always be a part of life. Whether it is part of your business, your income taxes (along with your income tax rate), your sales tax (along with your sales tax rate), and so forth, the United States will always require citizens to pay taxes.

Taxes are accounted for by an LLC as a state income tax. This means that the LLC doesn’t have to file taxes as a business. Instead, each member of the LLC just lists the business by its classification on their personal income tax. It is important to know which category your LLC would be. It is recommended to speak with a specialized business accountant.

Limited Accountability

An LLC’s name says all there is to know about the type of company it is. The “limited liability” means that there is less accountability needed compared to other business entities. This means that the LLC provides a cushion of safety against more external debts and liabilities.

This type of business entity is unique because the other three business entities and owners are considered the same, resulting in more liability. Examples can be numerous- leaving the LLC to be known as the limited liability winner.

Fewer Issues

An LLC stands out from the rest of the business structures because of the scarce issues that the structure encounters. In a business sense, fewer problems mean fewer risks. This can be mistaken as a point of emphasis on limited liability; however, the issues seen in a common business structure can be categorized as its talking point.

With fewer issues, there are scarcer complexities when dealing with the way that the business operates. The LLC structure is flexible enough to flow freely.

Flexible Allocation

Flexible allocation deals with how the money is managed. There are two separate instances in which allocation serves to be adaptable. First, there is investment flexibility, which means that members can evaluate and decide where (and how much) to invest free of regulations. Second, there is the profit-sharing element. Profit-sharing flexibility allows for flexible allocation of profits. This dual-flexibility allocation method allows for money to flow unrestricted.

Drawbacks

There are great talking points of the newer LLC business entity; however, it is imperative to know the downfalls of an LLC. Listed below are some of the drawbacks of an LLC.

Fees

In regards to an LLC, the fees are typically higher than any other entity-type. There are two categories for LLC fees- a filing fee and ongoing fees. The filing fee is the first fee that the LLC will pay. Any LLC that is adding or dismissing members will have to pay this fee for setting up another LLC. This fee can vary by state-to-state.

There is also the ongoing fee, which requires the members to pay annual fees to keep the business alive. The ongoing fee is usually in the form of a yearly or biennial fee, and the fee’s cost also varies from state-to-state.

Before starting an LLC, it is important to know the fees that your state requires.

Taxes

Taxes can fall under a positive and a negative category. Although the LLC’s taxes are classified as personal, there are still drawbacks to the method.

In the self-employment section of each member’s personal tax returns, the member will have to contribute to Social Security and Medicare. Also, the net corporate income/business income of the LLC is subject to self-employment tax. It is always important to consult with a tax accountant before making any decisions.

While it is not a positive speaking point of an LLC, taxes are a way of life in the United States. After all, it is a privilege to conduct business.

Less Legal Precedence

With the LLC model being fairly new compared to the other three models, there are a couple of drawbacks to consider.

The LLC is the newest entity type, which means that there is less precedence in the court of law. This is a negative factor because there is less reputability with LLCs. Legal precedence is important when dealing with a business issue. It is important to follow the rules and regulations to the best of the LLC’s ability.

State-by-State LLC Differences

To rank the number one LLC licensing state, it is essential to know the state-by-state differences that come with each governing body. Several differences have to be taken into account.

First, there is an ongoing report deadline. It is managed by the Secretary of State, who sets the regulations for any business entity (in this case, we are talking about the LLC structure). The report is usually annual and is required by most states.

Second, there is an operating agreement structure. This is the document that pertains to ownership, management/roles, and rules of the LLC. the operating agreement is optional in most states.

Third, there are publication requirements. This is the requirement set by the state government to publish a notice of business in a newspaper. This is mostly optional across the United States.

All three of these differences set forth by each state can vary, resulting in one state being better to form an LLC than another state.

Filing Reports

Each state sets requirements for any local LLC. The first of three factors (that are quantifiable) is the filing report. This report is required documentation that is requested by the Secretary of State. This section is broken down into three subsections: the LLC’s initial filing fee, the LLC’s ongoing fee, and the LLC’s report deadline.

Filing Fees

Every LLC in the United States is required to pay a filing fee when registering the business. Although some states are cheaper than others, this fee is directed towards the state’s cost of registering the LLC. Listed underneath are the LLC filing fees (along with the average filing fee) per state.

Ongoing Fees

The LLC may also have a second fee attached to its bill, which is called the ongoing fee. Although every state in the United States requires their LLCs to pay a filing fee, some states do not require the ongoing fee of keeping an LLC in business. Listed below are the state-by-state ongoing (and the average state) fees.

Reporting Deadlines

The ongoing filing report is usually requested yearly, although there are reports that are requested every other year or reports that are not requested at all. Below are the state-by-state requirements (along with the average of each state) for ongoing filings.

Operation Agreements and Publicity Requirements

LLCs can also differ in the way that they are conducted by their operating agreements and their publicity requirements. Also stated above, an operating agreement is a document that outlines the company’s ownership, management, and each LLC member’s rights and responsibilities.

An operating agreement is the only documentation that records the ownership of the LLC. Please note that the owner is not listed with the state. Among most states, an operating agreement is usually not required.

On the other hand, a publicity requirement is a newspaper publication that is required from the state. This requirement exists because of the need to let the general public know about a new business forming. Like the operating agreement, the publicity requirement is not required by most states.

Listed below are the states that demand an operating agreement or a publicity requirement.

Best State to Start an LLC

Overall, the best state to start an LLC in your home state (the LLC in the state of your residence). Some states offer key advantages over other states; however, it is best to stay in your home state because of the ease of the entity-forming process. For example, the business has to have a location, which will most likely be in your home state (or the spot where you are conducting business in the state).

Also, it is difficult to manage an LLC out-of-state because of the IRS’s tax structure and tax rates. The taxes depend on personal income, which makes the filing process more difficult when the business is not located in the same state. Plus, filing in a different state will always cost more money. The result would be to file your LLC as a foreign LLC (for out of state LLC's only). It is better to file your LLC as a domestic LLC.

Pulling the data from this article, it is safe to say that some of the best states to be a resident in for an LLC are Wyoming, Nevada, Delaware, Florida, South Dakota, North Carolina, and New Hampshire. All of these states are generally lenient with their fees, their taxes, and their formation of business. Some of the worst states to be a resident in are California, Iowa, New York, Louisiana, and Vermont. These states are generally higher in their fees, their taxes, and their formation of business.

Registering an LLC can be a difficult process. Choosing the right business structure for your business is the best way to start. Limited liability companies are a great means of business because of the liability safety that is provided to the partners, along with the lenient tax arrangement.

A business-friendly state can be more beneficial than others, resulting in lower LLC fees. The fees shouldn’t impact your decision on the location of your LLC. It is vital to do plenty of investigation into your endeavors. Keep in mind that it is also important to speak to qualified business lawyers and accountants for guidance on business matters before starting your own limited liability company.