Delaware is the most popular state to form an LLC for people who shop around different states looking for the best state. Nine of ten LLCs formed by Agents and Corporations, Inc. (IncNow®) are formed in Delaware. Agents and Corporations makes the Delaware LLC formation process easy and offers reliable Registered Agent services.

Factors to Consider When Choosing a State to Register an LLC

Every state has its own laws that make it easier or harder to pierce the corporate veil to attack personal assets of the LLC Owner. Knowing which state has the best protection should be of primary importance when shopping for a state of formation. Other factors to consider when selecting a state to register an LLC include:

Taxes

Most states have an annual flat fee that must be paid for the privilege of keeping an LLC in good standing. These fees must be paid to the state of formation. Most states refer to these as Franchise Taxes, but they have nothing to do with running a franchise like McDonalds. Knowing the amount due to the state each year can be a factor you decide in which state to register your LLC. Some of the more business-friendly states have less expensive annual Franchise Tax fees, for example, Florida’s is $132.50, Delaware’s is $300, and Nevada is $350. Other states have higher annual Franchise Tax fees due, for example, California is $800 and Massachusetts is $500. Note that state fees must be paid on time to avoid a late fee penalty.

Privacy

Delaware is known for its privacy when it comes to business ownership. Delaware is one of the only states that requires neither the manager nor member be listed in any annual reports nor the Certificate of Formation. Most other states like California and New York require ownership or manager information when forming the LLC or in annual reports.

Fees and Costs

Formation costs and annual fees should also be considered when choosing which state to register your LLC. The formation fees vary from state to state, for example in Delaware, there is a one time fee of $110 to form the LLC, an annual Franchise Tax of $300, and the annual Registered Agent fees. For the state of Nevada, the formation fees are $425 ($75 Articles of Organization, $150 initial list of managers, and $200 Nevada business license fee), the annual fee is $350 ($150 Annual list and $200 business license renewal), and the annual Registered Agent fees.

Legal Protection

With the formation of a Delaware LLC, you are equipped with multiple layers of protection. First and foremost, with the LLC, the business is treated as a separate entity. This provides personal asset protection, which protects your personal assets from being used to satisfy business debts. In the event that your business incurs debts or is sued, creditors can only sue the LLC. If the creditor wins, it can only collect against the assets owned by the business, not the owner’s personal property. Be sure to keep the LLC’s assets and debts separate from the owner’s assets and debts to avoid commingling. Business activities could lose the legal separation should a court determine the separateness was not respected and the company was just an “alter ego” of the owner.

Why Delaware Is Considered the Best State to Form an LLC

Generally, if you want the strongest protection, you should form your LLC in Delaware.

The Delaware LLC is easy to maintain and allows for members to choose how the LLC is taxed.  Delaware’s reputation of protecting business owners from creditors is widely known by businesses of all sizes. Delaware also protects managers from member lawsuits because Delaware protects virtually all business decisions, provided the decision is not self-dealing.

Other States to Consider

If you are looking to form an LLC outside of Delaware, you may want to consider Florida or Nevada. Florida, like Delaware, is advantageous in setting up an LLC as a multi-member LLC for protecting an individual’s personal assets and flexible management within the LLC. A multi-member Florida LLC should separate your personal assets (like your home and savings) from your business debts and liabilities, which means your personal property is generally protected from business lawsuits and business creditors. You should avoid the single member LLC formed in Florida because of the “Olmstead Rule” that runs the risk of the LLC being seen as an alter ego of the owner and losing the asset protection shield. Therefore we only recommend multi-member LLCs if you choose a Florida LLC. Compared to setting up a corporation, Florida LLC’s require less paperwork, are less expensive, and generally simpler to set up. When managing a Florida LLC, you can choose how to run the business. You can have the members manage it directly, or you can appoint managers to run the daily operations.

Much Like Delaware and Florida, Nevada offers LLCs strong asset protection, flexible ownership within the entity, and a generally business friendly environment. Nevada claims to only allow piercing the LLC veil for fraud. Nevada has powerful laws that protect members from personal liability for the company’s debts and lawsuits, keeping an individual’s assets protected from business lawsuits and business creditors that the LLC may encounter. With that said, Nevada courts are not as reputable and predictable as Delaware. Nevada LLCs are flexible in their ownership structure, whether it is a single-member or multi-member structure. Nevada is known for having business-friendly laws and a streamlined filing process, making it simple to set up a Nevada LLC.