Choosing where to form your Limited Liability Company (LLC) can sometimes be as perplexing as selecting the best legal structure for your new business. You have two basic options regarding where to register your LLC. You can choose to be:

• a “domestic” LLC in your home state, or
• a “foreign” LLC in another state.

A domestic LLC does business in the state in which it was formed. A foreign LLC is an entity that is transacting business in a state other than where it was originally formed. Any LLC that does business outside of its registration state must file a “foreign qualification” to permit it to undertake business in other states. Such issues as increased paperwork, tax treatment, and compliance and disclosure obligations may impact whether you decide to stick close to home or explore out-of-state alternatives.

1. No Place Like Home.

Many LLC owners opt to file in their home state as a domestic LLC if they are physically located and transact most of their business within that state. For example, if you run a retail boutique and make most of your sales in your home state, it probably makes sense to file your LLC in that same state. If you decide to register your LLC in another state, but run your store in your home state, you will have to register and pay filing fees as a foreign LLC. Like other local businesses, you will still have to comply with state and local laws, taxes. and fees, but will now have the added costs, paperwork, and complexity of complying with another state’s mandates. If your LLC is located within one state and your business transactions occur within that same state, it is typically easier and less costly to file an LLC as a domestic LLC.

2. A Taste for Foreign Intrigue.

Some start-ups plan to transact business in numerous states outside of their home state. If your business strategy focuses on out-of-state business, your LLC might benefit from registering as a foreign LLC depending upon applicable advantages. If you think that might be the case, you may want to consult with an attorney or tax professional to determine if registering as a foreign LLC makes sense for your LLC. Three states are often hailed as business-friendly bases for registering as foreign LLCs.

• Delaware. This state has a long tradition of being pro-business with more than 50 percent of all U.S. publicly-traded companies and about 63 percent of Fortune 500 companies incorporated in Delaware. Its LLC formation statutes are very accommodating and progressive with low filing fees. There are no corporate income taxes for foreign LLCs that do not do business in Delaware and there are low franchise taxes. There are no residency mandates for registering your LLC and limited reporting and disclosure requirements. Delaware boasts a special business court, the Delaware Court of Chancery, with over 200 years of experience handling commercial disputes and interpreting business laws. Its Division of Corporations is known for its fast and efficient services utilizing state-of-the-art technology. To learn more about registering as a foreign LLC in Delaware, visit its Division of Corporations’ website.
• Nevada. This western state is another business-friendly location with laws that are favorable to corporate entities and their management. Like Delaware, Nevada’s courts are viewed as pro-business. In Nevada, there are no corporate income, personal income, or franchise taxes and the state does not participate in information sharing with the IRS. The state also offers confidentiality to LLC owners permitting them to remain unnamed in public registration filings. For compliance purposes, no operating agreement and no organizational or annual meetings are mandated. Additional information on forming a Nevada LLC can be found at the Nevada Secretary of State's website.
• Wyoming. Similar to its western neighbor, Wyoming also seeks to provide a business-friendly environment. Reporting obligations are minimal and annual meetings may be held outside of Wyoming. Like Nevada, it does not assess any corporate income, personal income, or franchise taxes. Further, the state allows privacy as to the identities of LLC owners in public records. Wyoming also recognizes lifetime proxies which allow owners to protect their identity and assets by directing others to hold their member shares while still retaining control over any attendant voting rights on LLC policy and strategies. For more information, check out Wyoming’s Secretary of State website.

For more information, see Nolo's section on Starting an LLC. You'll find all the information you need to form your LLC and get your business started off on the right foot.