Some states claim to be the best states in which to establish an LLC. Wyoming, Nevada, and Delaware are a few names that I commonly hear. Be wary when you hear advice on where to establish an LLC. Chances are unless you’re doing business in one of these states, it’s unlikely they are the best answer for your particular situation. Here are a few things to consider when thinking about an LLC.
Do you have a registered agent?
A registered agent is an individual (or entity) that accepts tax and legal documents on behalf of the business. Obviously, if you don’t live in the state where you establish the LLC or know someone else who can receive documents on your behalf, you’ll have to pay someone to be the registered agent. A registered agent can be found quickly and easily, but it will likely cost a few hundred dollars each year. You can be your own registered agent, but a registered agent is public. Many times, people want to keep their affairs hidden from the public eye. If you aren’t worried about privacy, you can be your own registered agent, free of charge.
Taxes
Generally, a person or business is taxed in the state where the income is earned. If you set up an LLC in Nevada, but the money is earned in California, you’re probably going to be paying California income tax. It’s a better idea to take a look at the annual reporting requirements and fees associated with establishing an LLC. For instance, Ohio only requires a one-time fee of $99 at the inception of the LLC and there are no annual reporting requirements to be held in good standing with the Ohio Secretary of State. States that don’t have an income tax (NV, WY, etc.) might have heavier fees and annual reporting requirements for LLCs.
Which state has jurisdiction in a lawsuit?
You have probably heard that Delaware is a great state to start a business for a litany of reasons. One reason might be that Delaware has an extensive history of business law and litigation, which minimizes uncertainty for business owners. Based on this, assume you establish an LLC in Delaware for a rental property you own in Florida. Since the LLC property is outside of the state where the LLC is organized, you may have to meet “foreign qualification” requirements in order to (legally) do business in Florida while enjoying legal protection. If your Florida tenant sues you, you’re probably getting sued in Florida. If you are “conducting business” in Florida, but have only registered in Delaware, you might not have any LLC protection in Florida. If the LLC was a domestic Florida LLC, this issue likely would have been avoided. As an aside, although Delaware has an extensive history of business law, Delaware waited until 1991 to have their own LLC. The first LLC was created by Wyoming in 1977.
MoneyManeuvering 