Looking for the best state to register your business? This article will help you decide which state will offer your business the most benefits.
This article is for you if you want to incorporate in the USA, no matter whether you’re a resident or not.
Does It Matter What State You Form Your LLC In?
Yes! Because each state differs in terms of its laws and regulations.
The interesting thing about the USA is that each state is seen as a sovereign entity. And each state can create and implement unique rules and laws. This is laid out as ‘state sovereignty’ in the Constitution. But choosing between the fifty states can be confusing.
So, from state to state you will find differences in tax rates, benefits, privacy laws, and more.
As you can imagine, incorporating in a more business-friendly state can be beneficial for your finances. It can also mean more asset and privacy protection.
Can I File an LLC in a Different State to Where I Live?
Yes, you can. But you have to be careful so that you don’t end up complicating things for yourself.
If you’re a permanent resident in a state, and you run your business from that state, then you should incorporate it in that state. This applies even if your business is remote.
Why? Because in the eyes of the state you’re conducting your business from that specific state and should pay your taxes there.
The only exception is if your business has significant ties with a different state. This is referred to as nexus and we’ll discuss it in more detail in this article.
If you’re not a resident of the US you can pretty much choose which state to incorporate in.
Incorporating an Online Business
If you’re a location independent entrepreneur, you can choose any state in the US to incorporate.
The only exception is if your business has significant ties to a state. For example, a head office or a warehouse. Then your best option is to incorporate in that state. Here’s why:
Nexus: The Link Between Your Business and a State
‘Nexus’ is the connection your business entity has with a specific, or multiple states. The exact definition of nexus varies from state to state, but the general idea is the same…
If your business is mainly transacting in one state, and most of the profit comes from that state. If you have a warehouse or an office in a state. If you have a physical store somewhere. That means you have nexus in that state. And that state has the right to impose its sales tax on your business.
The importance of this is that a nexus will tie you to a state regardless of where you incorporate officially. In the end, you might end up paying taxes and filing in two states if you don’t take nexus into consideration.
If you already have nexus in a state, but want to incorporate somewhere else, you can think about moving your nexus.
Some states have laws and regulations that prevent double taxation etc. In that case, you might be able to incorporate somewhere else while keeping your nexus. But you’ll be responsible for filing in both states.
Are The Differences Between States Significant?
There is a lot of variability between states and their tax/ business laws. It’s worthwhile incorporating in a state that will save you money in taxes, offer you better asset protection, and more privacy.
For example, some states charge no income tax while others have a progressive income tax structure that can add up to almost 10%.
But low tax rates aren’t the only driving factors for entrepreneurs to prefer certain states over others.
Asset protection, privacy, business-friendly court systems, these are some of the additional things to consider when choosing your state.
Wyoming for Business Formation—the Pioneer of the LLC
The LLC structure was born in 1977 in Wyoming. The inspiration came from a conflict between the rules set out by the IRS and the needs of business owners at that time.
Business owners were seeking a more flexible and favorable business structure.
Now, forming an LLC is the most popular and flexible choice for small to medium businesses.
Wyoming is seen as one of the most pro-business states. With great tax, privacy, and asset protection laws.
Tax Benefits in Wyoming
Wyoming boasts a range of tax benefits and exemptions that are attractive to business owners. Starting with no personal income tax, and no corporation tax. Furthermore, the sales tax rates are some of the lowest in the country.
Data Protection
In most states, it’s required that the personal information of LLC members is listed with the state. This information is accessible by anyone.
This keeps a paperwork trail that personally ties you to the business. It also ensures you’re easy to reach in case of a lawsuit.
Wyoming is one of the few states that allow some privacy. You can avoid having your personal information listed with the state if you hire a service to incorporate for you.
In this case, you will not be required to list your information on the Articles of Organization. And since you will not file a personal tax either, your personal affairs will not be publicly linked to your business.
Every business has to file an annual report. The information of the person filing the report will also be available to the public. Most businesses hire a registered agent service to complete the filing on their behalf.
A registered agent service will file your annual report on your behalf and keep your information private. They’ll also make sure that you never miss a deadline and face a penalty.
No Minimum Capitalization
You can form your LLC in Wyoming with as little as a $1 initial investment. While some states shake their heads at ‘under capitalization’ Wyoming welcomes you with open arms.
Low-Cost Maintenance
The administrative costs in Wyoming are low in comparison to other states. You’re in for a pleasant surprise, with the yearly annual fee being just over $50.
Delaware—the Fortune 500 Favorite
Delaware is famous for attracting a big chunk of the Fortune 500 companies. It operates the most pro-business court system in the USA.
Premium Justice System
Delaware’s court of chancery is a non-jury court. Each case is heard by a Chancellor who is skilled and experienced in corporate law. This means that you can rely on a fair hearing, based on law and not public opinion.
What does this mean for you? Faster, less expensive, and fairer court hearings.
Tax Shelter
Delaware is considered a tax shelter due to its attractive tax laws.
Delaware doesn‘t charge income tax, sales taxes, or corporate income taxes. This also applies to investment and interest earnings for your business.
Low Fees and Fast Turnarounds
The incorporation and maintenance fees in Delaware are some of the lowest in the country, and they have fast turnaround times. You could have your company incorporated in just three days.
New Mexico—Anonymous LLC
One of the very few states which offer absolute anonymity for business owners is New Mexico.
Complete Anonymity
New Mexico differs from other states that offer privacy because the state doesn’t keep any information on owners or managers or the LLCs.
Most states allow you to use a Registered Agent to keep your information private, but your details are still kept on file as a member of an LLC.
In New Mexico, only two names are needed on the Articles of Organization, the organizer and the registered agent. And neither one has to be the owner or a manager of the LLC.
No Annual Reports
New Mexico doesn’t require you to file annual reports. This means less paperwork and fewer expenses to maintain your LLC.
An Annual Report can be seen as an update for the state on your organization and its structure. The report contains the names and addresses of the owners, managing members, and the registered agent.
Normally, you have to pay an annual fee to maintain your organization in official records. This fee varies from state to state, it can be anywhere from $40 to $400.
Most states also penalize organizations that miss the annual filing deadline.
New Mexico liberates you from the additional burden of deadlines and possible fines. Like a knight in shining armor, the state simply doesn’t keep records on LLCs. Reducing the bureaucratic load. Way to go New Mexico!
Fast Turnarounds
New Mexico offers some of the fastest incorporation times since they have moved the procedure online. Their process is seamless and can be as quick as one working day. Talk about speedy!
Florida—A Business-Friendly State
Small to medium businesses love Florida for its pro-business regulations and tax laws.
No State Income Tax
Florida only imposes state income taxes on traditional corporations and C-Corporations. Most small to medium-sized businesses are LLCs and S-Corporations.
If you’re also looking to be in the lucky category, you’ll find Florida to be a wallet-friendly place.
As an individual, you aren’t liable for state income tax either, making this a double win!
Tax Exemptions
Florida offers a bunch of tax exemptions that your business might be able to take advantage of. It’s one of the most encouraging states for small-to-medium businesses.
Relatively Low Administration Fees
Florida’s administration fees are among the lowest in the country. Making it yet another state that’s wallet friendly for new businesses.
Stable State
Florida ranks as a well established state, with great fiscal stability and economic growth. It’s the preferred choice for business owners who seek stability.
Summary
Each state offers different tax rates, privacy regulations, and asset protection options. Wyoming, Delaware, New Mexico, and Florida are some of the best states to incorporate in the USA, especially for remote business owners.
It might be difficult to decide which state is the best option for your business. Why not take advantage of our free consultation, during which we can advise you on which state to incorporate in and which type of business structure is best for you.
Find out more here.
