Best state to open an LLC

Discover the best states to form an LLC in the United States: Delaware, Wyoming and New Mexico. Costs, tax burdens and benefits in detail.

best states to create llc

Juanma Aranda

As I explained in another of the articles in this blog, forming an LLC in the United States can be an excellent option for entrepreneurs who need to invoicing without being self-employedbut the costs and the tax charges vary significantly among the different states.

And this should be one of the first decisions you make when it comes to cing an LLC in the United States United: the state where you are going to incorporate.

Below, I will explain the most recommended states to form an LLC in terms of incorporation costs, tax burdens and overall benefits.

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Delaware

Famous for its business-friendly environment

Advantages

  • Legal flexibilityDelaware has a very pro-business legal system, with a court specializing in business disputes, the Court of Chancery. This court is known for its quick and business-friendly decisions.
  • AnonymityYou can create an LLC in Delaware without the names of the members or managers being public knowledge.
  • Favorable taxation for non-resident companiesIf your LLC does not generate income in Delaware, you will not have to pay state income tax.
  • Low franchise taxDelaware levies an annual franchise tax of $300which is affordable compared to other states.

Disadvantages

  • Although Delaware does not collect corporate income taxes on businesses that do not operate within the state, all LLCs must pay the Delaware corporate income tax rate. $300 of franchise taxregardless of their income level.
  • Initial chargesInitial incorporation costs may be slightly higher compared to other states.

Recommended forInternational entrepreneurs seeking a solid legal structure, with legal protection and tax advantages for non-US businesses.

Wyoming

Economical and with anonymity

Advantages

  • Low incorporation costsWyoming is known to be one of the most affordable states to form an LLC. The initial cost of formation is approximately $100.
  • No state income taxWyoming does not impose a state income tax on individuals or businesses, which means you will not have to pay taxes on out-of-state profits.
  • Low franchise taxThe annual maintenance cost is very low, with a minimum maintenance fee of $50 (or 0.0002% of the company's capital).
  • AnonymityLLC owners in Wyoming can remain anonymous, which provides additional privacy.
  • Asset protectionWyoming law provides a high degree of protection of personal assets from lawsuits.

Disadvantages

  • Less internationally recognized than Delaware, although it has grown in popularity among entrepreneurs seeking privacy and low costs.

Recommended forSmall or international companies looking for reduced costs and privacy, without the need for a complex corporate structure.

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New Mexico

No annual reports and low costs

Advantages

  • No franchise taxNew Mexico: New Mexico does not charge a franchise tax or annual maintenance fees, making it one of the most economical options in the long term.
  • AnonymityLLC owners in New Mexico can maintain a high level of privacy, as no annual reports or information about LLC members are required in public records.
  • Low incorporation costs: The incorporation of an LLC in New Mexico costs around $50 to $100depending on whether you do it yourself or through a service.
  • Limited state taxesAlthough New Mexico has a Gross Receipts Tax, if your business does not physically operate in the state or generate income within the U.S., you will not be subject to it.

Disadvantages

  • Less recognition compared to Delaware or Wyoming. While still a viable option, some international investors prefer other, better known states.

Recommended forSmall businesses or international freelancers looking for a low-cost structure with minimal administrative obligations.

Nevada

No income tax and no franchise tax, but more expensive

Advantages

  • No state income taxLike Wyoming, Nevada has no income tax for individuals or businesses, which is a significant advantage if you plan to generate income.
  • Asset protectionNevada's laws are very favorable in terms of asset protection and limited liability.
  • AnonymityYou can form an LLC without the names of the owners or managers being publicly disclosed, which gives you a high level of privacy.

Disadvantages

  • High initial and annual costsIncorporation costs are higher than in Wyoming or New Mexico. Nevada has an initial fee of approximately $425 (including a list of state fees, commercial registration and others).
  • High franchise taxAlthough Nevada technically does not have a franchise tax, it does have annual registration fees that can be more expensive than in other states.

Recommended forThose who seek a state with no income tax and who do not mind paying higher initial and annual fees for greater asset protection and anonymity.

Texas

No income tax, but with franchise taxes

Advantages

  • No state income taxTexas does not have a personal income tax, which can be beneficial if you expect to generate income.
  • Good business environmentTexas is a pro-business state, with a diverse and business-friendly economy.

Disadvantages

  • Franchise taxAlthough there is no income tax, Texas has an income tax rate of franchise tax based on gross receipts, which affects all LLCs operating in the state. This tax can be a drawback if you do not generate a lot of income.
  • Administrative costsTexas incorporation costs are relatively higher compared to other states such as Wyoming or New Mexico.

Recommended forCompanies that expect to have a significant presence in the U.S., especially in Texas, where the economy is strong, and are looking to benefit from the lack of personal income tax.

Conclusion What is the most suitable state?

  • Yes you are looking for the lowest cost and administrative maintenance, Wyoming o New Mexico are the most recommended options. Both states offer a very favorable environment with minimal annual costs, making them excellent options for small businesses or international entrepreneurs who do not plan to have physical operations in the US.
  • Yes you want greater anonymity and recognition, Delaware is a solid option. It is better known worldwide, which can be useful if you are looking for investors or if you have a long-term growth plan.
  • Nevada is ideal if you care about asset protection and don't mind assuming higher upfront costs.
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