When starting a limited liability company (LLC), a crucial decision is where to base your LLC. You may have heard that certain states, such as Delaware, offer advantages to LLCs. This is true. But you should also know that Nevada has emerged as one of the most attractive states for LLC formation.
Advantages of Forming an LLC in Nevada
Nevada offers many advantages for LLCs. There is no state income tax for LLCs, no corporate or franchise taxes, and no personal state income tax. Nevada LLC filing fees are a bit higher, at $425, and there are annual filing fees as well. Read here about the costs of forming an LLC in Nevada. But the tax and other benefits tend to outweigh this.
Here is a rundown of the benefits:
- No state income taxes
- No state corporate taxes
- No franchise taxes
- Privacy protection for LLC owners
- No operating agreement requirement
- No annual meeting requirement
- The judicial system relies on case laws to settle disputes
- Strong personal liability protection for LLC owners
- No information sharing with the IRS
The tax benefits are the main factor that makes it an attractive state to form an LLC. Delaware, on the other hand, does have state income and corporate taxes, as well as franchise taxes.
Many businesses choose Delaware because it has a loophole that allows companies to transfer the profits of subsidiaries in other states to their Delaware LLC, significantly reducing their taxes in those other states. Nevada does not offer this advantage.
Should You Choose a State Other Than Your Own?
If you’re thinking of forming an LLC in a state that’s not currently your home state, you may only be doubling your paperwork and filing fees. This is because you’ll likely still need to register as a foreign LLC in your home state and be subject to its laws and taxes as well as those of the state in which you form your LLC.
This is true even if you merely base your business in your home state without doing any sales there. This is because your business headquarters must be in the state where you live, whether you work from your home or not. Most state laws dictate that you must physically move to the state in which you form your LLC in order to avoid registering as a foreign LLC in your original home state.
A foreign LLC is simply an LLC doing business in a state other than the one in which it’s registered. For example, if your LLC is registered in Alabama but you also do business in Georgia, you’ll need to register a foreign LLC in Georgia.
If you have an LLC in your home state but do business in other states, you need to register as a foreign LLC in all of the states in which you do business. Each state has different rules defining what doing business in their state means. Check with the secretary of state in any states where you may be doing business to see if you qualify. Generally, you’re doing business in another state if:
- You have a physical presence of any kind in that state
- You have employees in that state
- You regularly meet with clients, managers, or investors in that state
- You’re licensed to do business in that state
You also may be considered a foreign business if your business has a bank account or property in that state. However, if you’re an online business in one state and happen to make a lot of sales in other states, you’re probably not considered a foreign business and thus not required to register a foreign LLC.
Choosing the state in which to form your LLC is not as simple a decision as it may seem. Nevada offers many benefits for LLCs, but it may not be beneficial to you if you’re still subject to the taxes and laws of your home state. It’s highly recommended that you speak with a tax advisor familiar with the laws of your home state and Nevada to advise you on the best decision for you and your business.