Start with the state where your business will operate. Forming in another state can add a second registration and another set of fees. A lower formation charge alone does not make that state the better choice.
List the business’s locations, activities and owners. Then use the state comparison table to compare the filing charges and recurring requirements for those locations.
List where your business will operate
Write down where people will work, where an office or other premises will be located, and where the company will carry out its activities. Include employees, inventory and any regulated services. An online business still has owners, operations and a real-world location to consider.
The SBA’s business launch guide explains that location affects taxes, zoning and regulations. Customer location can also matter for particular taxes, but a tax obligation and an entity-registration obligation are not interchangeable tests.
If the answer is unclear, ask an adviser about the actual activities. Avoid choosing a state solely because an advertisement describes it as universally cheaper or more private.
Understand foreign qualification
In state business-registration terminology, an LLC formed in one state can be considered a foreign LLC in another state. That use of “foreign” can describe a company formed elsewhere in the United States.
When the company must qualify in another state, you may have a second filing fee, another agent or office arrangement, and more than one reporting or tax calendar. The SBA describes foreign qualification as a separate registration process and directs businesses to the relevant state offices for the requirements.
Before paying to form elsewhere, check the foreign-registration requirements in each state where you plan to operate.
Compare the full set of obligations
Compare these costs and tasks for each state:
- The formation document and filing charge, including the method used.
- Any required initial report, name reservation, publication or business license.
- The recurring report, statement, registration fee or state tax.
- The agent or registered-office rules.
- The cost of qualifying in another jurisdiction, if required.
- How easily you can maintain the records and receive official notices.
Some reports are annual, some are biennial, and some states do not require a routine LLC report. A $0 report fee does not establish that the business owes no tax or has no other obligations. Our LLC cost guide separates those categories.
Treat taxes as a separate analysis
An LLC is a state-law business structure. Its federal tax classification depends on the number of members and any applicable election. The IRS’s LLC overview explains the default treatment and corporate-election possibilities.
A state’s reputation does not determine all of the taxes that apply to the owners or the business. Avoid assuming that an out-of-state formation eliminates obligations in the place where work is performed. A tax adviser can assess the relevant facts, including a non-US owner’s circumstances.
Make the decision before you file
Once the jurisdiction is chosen, open its state guide and work through the starting checklist. If the company already exists in another jurisdiction, investigate foreign qualification, conversion or domestication before forming another entity with a similar name.
Compare the US-resident decision guide with the guide for founders abroad for a more specific shortlist.
