Which state should you form your LLC in?
Written by the filing team at FastBusinessFiling. Reviewed .
For most small businesses, the best state to form an LLC in is the state where the business physically operates. Forming in Wyoming, Delaware or Nevada while running the company from somewhere else generally requires registering as a foreign LLC in your home state as well, which means two filing fees, two annual reports and two registered agents indefinitely — for benefits that mostly apply to companies raising outside investment, holding property across state lines, or genuinely operating in no fixed place. The states with the lowest formation fees are Montana at $35, followed by Kentucky and Arkansas, but a low formation fee tells you almost nothing about what a state costs to stay in.
The short version
- Doing business in a state generally means registering there, whatever state the LLC was formed in.
- Forming out of state usually doubles the ongoing paperwork rather than avoiding it.
- Formation fee and total cost of ownership are different numbers. Compare the annual report too.
- Delaware makes sense for companies expecting institutional investors. That is a small group.
- No state lets a resident of another state avoid their own state's income tax by incorporating elsewhere.
Why the out-of-state pitch works
It sounds sophisticated, and there is a kernel of truth in it. Delaware really does have the most developed body of corporate case law and a court that hears business disputes without a jury. Wyoming and Nevada really do have no state income tax and comparatively strong privacy rules.
None of those facts change what your own state does when you operate inside its borders. Nexus is about where the business happens, not where a certificate was signed.
What foreign qualification actually costs
Register a Wyoming LLC to do business in California and you file a foreign qualification with California, pay California's fee, appoint a California registered agent, and file California's ongoing reports — on top of everything Wyoming wants. California also charges its $800 franchise tax to foreign LLCs doing business there, which is the detail that turns this from an inefficiency into an expensive mistake.
You have not avoided a state. You have added one.
Where Delaware genuinely earns it
If you expect to raise venture capital, investors will very likely want a Delaware entity, and usually a corporation rather than an LLC. That expectation is real and it is not worth fighting over.
Delaware's Court of Chancery is also a genuine asset for companies with complex ownership and the kind of disputes that end up in front of judges. If your ownership is you, or you and a partner, this is not your problem yet.
Where Wyoming and Nevada genuinely earn it
Holding companies for real estate, businesses with no physical operations anywhere, and owners for whom public disclosure of names is a specific and considered concern. These are narrow cases and they turn on facts a filing service does not know about you.
The pattern to be suspicious of is a company that recommends the same state to everybody. That is a business model, not advice.
Comparing states on the number that recurs
Formation is a one-off; the report is forever. A state that charges $50 to form and $300 a year afterwards is more expensive by year two than a state charging $200 and nothing after. Franchise taxes sit on top of that, and they are not always advertised alongside the filing fee.
Our by-state tables put the formation fee and the annual report fee side by side for all 51 jurisdictions, with the date each was verified, so the comparison can be made on the number that actually repeats.
Common questions
Yes, any state will take your filing and your fee. Doing so does not exempt you from registering in the state where you actually do business, which is the part that makes it expensive rather than clever.
Montana has the lowest formation fee at $35. Cheapest to form and cheapest to keep are different questions, and the second one depends on the annual report and any franchise tax. Our by-state table shows both.
Not for you. Income tax follows the owner's residence and where the income is earned, not the state on the certificate. A resident of a taxing state pays that state's tax on their share of the profit regardless of where the LLC was formed.
For a small operating business, usually not — you get Delaware's fees plus your own state's. Delaware's advantages are built for companies with outside investors and complicated ownership, and the LLC form is not where most of them apply.
An LLC formed in one state and registered to do business in another. Foreign here means out of state, not out of country. The registration is a separate filing with its own fee and its own annual obligations.
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FastBusinessFiling is a document filing service operated by Fast Filing Group LLC. We are not a law firm or an accounting firm, and nothing here is legal or tax advice. Rules and fees change; where this page states a figure, it carries the date it was checked. For advice about your own situation, talk to a licensed attorney or CPA.