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Where Should I Form My LLC?

Since all fifty states and the District of Columbia have LLC statutes, most businesses can be organized as an LLC in any of those jurisdictions , but laws governing LLCs can vary by location. In deciding where one should form an LLC, one should consider factors such as the formation cost, state tax laws and business laws, and whether it will be necessary for the LLC to qualify/register to conduct business in one or more other states. Forming an LLC in a state different from where the LLC will operate is permissible since every state will recognize a foreign LLC (an LLC formed in another state) and will allow the LLC to conduct business within the state. However, each state will typically require the foreign LLC to register (generally by filing an application for certification of authority), maintain a registered agent, and pay certain fees.

Organizing in a state different from where the LLC will operate could lead to additional problems and costs. Typically, additional organizational and registration costs and fees will apply, such as “foreign qualifications” if you form your LLC in a state different from where the LLC will operate. For example, if an LLC operates a business in the state of Colorado but was organized in the state of Delaware, the LLC will incur dual costs (formation costs in Delaware and the cost of qualifying the LLC to do business in Colorado). In addition, by forming your LLC in a state different from where the LLC will operate you may be become subject to paying franchise taxes and other government fees in more than one state. Generally, LLCs must file separate tax returns for each state in which they do business based on the income generated in each state, regardless of where the LLC was formed. In addition, several states will impose other types of taxes on the LLC such as annual fees, filing fees, franchise fees, and other fees.

In general, in most cases it is far more cost effective and efficient to choose to form your LLC in the state in which you will conduct the majority of your business.