Should I Consider Forming an LLC in Another State?

You will find a lot of commentary out there about forming an LLC in other states such as Delaware or Nevada. You may hear that Delaware or Nevada has better established LLC laws when it comes to protection, flexibility and privacy.

In my experience, if you are going to be conducting your business from your home state, then for 90% of small businesses, you should set up an LLC in your home state. Here is why:

First, when it comes to protection, every state in the US has LLC laws that provide the same fundamental LLC protection.

Second, it is true that some states require less information to form an LLC then others. This is a benefit in that you have more privacy in some states when it comes to your LLC business. BUT (and this is a big BUT), if you are going to run your business from your state, you are going to have to register your LLC in your state no matter what. If it is not formed in your state, then it will be registered as a foreign LLC. Any registration will require that you disclose the same information you would have to disclose if you had formed the LLC in that state to begin with. So, the privacy benefits will not be received.

PLUS, if you form a limited liability company in another state and then have to registered it in your state, this means paying filing and maintenance fees in two states, possibly having reporting obligations in two states and maintaining a registered agent in both states. For most small business, the added administration is not worth the effort.

In 10% of the cases, forming in another state may be beneficial such as if you have investors in other states who require it, or you need a series LLC (which is only recognized in some states). If you are going to take in professional investors such as venture capitalists, you may want to consider Delaware but in these situations, you will likely not be picking an LLC in the first place.

An LLC is designed for the small business owner who runs his or her own business. Having your LLC in your home state is the simplest and easiest method for gaining the benefits and protections of a limited liability company.

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