You’ve done it—you’re ready to take the plunge and set up your very own limited liability company (LLC). But now comes the hard part: figuring out where to incorporate. Do you go with your home state? Or do you look elsewhere, like Wyoming or Delaware? Here’s a quick rundown of the pros and cons of incorporating in your home state so you can make the best decision for your business.
The Pros of Incorporating in Your Home State
If your business has nexus in your home state—that is, you have employees, an office, equipment, a warehouse, or some other physical connection to the state—then you have two options:
1) register your LLC in your home state or
2) register your LLC in another state for better asset protection, then register that LLC in your home state as a foreign entity
Either way you will need to obtain a state tax id number in your home state. You will need this in order to withhold payroll tax on your employees.
Another advantage of incorporating in your home state is that it will be easier to open a business bank account at a local or regional bank. When you’re just starting out, it can be helpful to have a bank account that’s close to where you live. That way, if there are ever any problems with your account, you can resolve them quickly and without too much inconvenience.
Lastly, incorporating in your home state can give you a feeling of roots and belonging. After all, this is the place where you grew up and the place where you’re now setting out to make your mark on the world. Forming an LLC in your home state can help connect you to other businesses in the area. It may also make it easier to form partnerships down the road.
The Cons of Incorporating in Your Home State
There are drawbacks to incorporating in your home state as well, chief among them being increased taxes. If you’re doing business in multiple states, registering your LLC in one of the more tax friendly states may help you save on taxes.
For example, if most of your customers are located outside of California but you choose to incorporate there anyway, you’ll have to pay California’s high tax rate. Even though none of that money is actually coming into the state.
You might also want to consider other options if you don’t have nexus in your home state. In this case, registering an Wyoming LLC or a Delaware LLC might be a better option for asset protection. These states have more business-friendly laws than many others, which means they’re often chosen by LLC owners who live elsewhere.
Conclusion:
There’s no right or wrong answer when it comes to incorporating your LLC. It all depends on what’s best for YOU and YOUR BUSINESS. If most of your customers are located in your home state and incorporation will help connect you with other businesses nearby, then by all means go ahead and set up shop at home! But if registered elsewhere will help save on taxes or offer greater asset protection, then incorporation outside of your home state may be the better option for YOU AND YOUR BUSINESS DOWN THE ROAD.
