What is an LLC?
LLC stands for Limited Liability Company and was first accepted as an authorized legal business entity in the late 1970s in Wyoming. Since then, it is recognized in every state and has become one the most popular business structures for SMBs primarily because of its liability protection. It offers business owners the simplicity of a general partnership in terms of formalities and taxes, yet with the personal protection and shield against company debts and liabilities of a corporation. Otherwise, you could be held personally responsible for the mistakes your business might make.
Another huge benefit of forming an LLC is its flexibility. You get to choose whether you want to be managed as a partnership (member-managed LLC) or as a corporation (manager-managed LLC) with all its formalities, such as a board of directors and annual meetings, or just forgo those completely. You also get to elect how your LLC will be taxed by the IRS; as a sole proprietorship (single-member LLC), as a partnership (multi-member LLC) or as a corporation. Filing your LLC as an S corporation has some great tax advantages as it allows business owners to split their income between their distribution as a partner and status as an employee. This type of LLC tax structure can result in paying less self-employment tax and leaving more money in your pocket.
LLCs can also be turned into a corporation down the road if the business takes that direction. With the simplicity, liability protection, and flexibility of an LLC, it is no wonder why so many business owners select this type of business entity when forming a company.
LLC for small business
As we mentioned above, an LLC is one of the most favored business structures for small business startups. For many entrepreneurs, like in many of the following cases, we recommend you consider launching your business as an LLC:
- Starting a trucking business
- Starting a real estate business
- Starting a vending machine business
- Starting a flower decorating business
- Starting a marketing business
- Starting a dog walking business
- Starting a software consulting firm
- Starting an Amazon/ online sellers business
Launching a business can be overwhelming with all of the legal paperwork required and costs involved to get the business up and running. Most startups face similar challenges from how to register their company to managing and growing the core business from the ground up, while sticking to a budget. Business formation services can help make this entire process much easier and faster.
Why use an online formation service to start my business?
Online formation services offer a fast and cost-effective solution to forming a business. These filing services and industry experts offer all the services you would need to start and run your business, such as preparation and filing of LLCs and corporations, business licenses, legal documents, compliance, EIN, and registered agent services, all in one place for an affordable price.
With online legal service providers, forming your business is a quick, straightforward, and smooth process. All you need to do to get started is select one of the top business formation services above which will take you to their website. Then pick the business entity you are interested in, whether it be an LLC, S corporation, or C corporation, and enter the state you wish to register your business in. You will then be prompted to enter your desired business name, select the type of business package you want to proceed with and you’re all set.
Forming your LLC or corporation is no longer a complicated, lengthy, and expensive process when you leave it to these industry professionals to do the work for you.
Professional services can also help you expedite your LLC registration. If it’s important for you to start your business fast and with minimal effort, ZenBusiness offers expedited filing including banking resolution in their Pro package for $199 + state fees. Their pro package includes everything you need to launch your business.
Domestic LLC vs. Foreign LLC
A domestic LLC means you file in your state of residence and you do business mainly in that state. This is the most common and cost-effective scenario.
A foreign LLC is used when you have filed papers in one state, and you have a physical facility or storefront in another state. In order to do business in that second state, you need to file a foreign LLC. Foreign LLCs tend to cost more and require a registered agent. Conversely, if you file for an LLC in another state for some reason, and you do business in your home state, you will have to file a foreign LLC in your home state in order to do business there.
Recommended state to form an LLC
While you can file in any state you wish, bear in mind the extra fees and paperwork required when you file an LLC outside the state that you do business. Even if you are a freelance writer with clients around the world, you are going to be taxed in the place where you are doing business. Even if you travel a lot, pick a state where you live or have the most connection – where you own a house, where you have your driver’s license, or where you pay your state taxes.
Does my LLC have to be registered in the state I live in?
No, but that is most often the clear choice. If you do business in one state or have a physical address or store, filing in the state you reside in has advantages. Filing out of state requires a registered agent as well as filing as a “foreign LLC” for each state you do business in. It often saves a lot of money to file in your state of residence. However, if you do not have a physical facility or storefront or are planning on conducting most of your business out of state, you can explore filing an LLC in another state.
Taxes are paid where money is made. It doesn’t matter if you file your LLC in Delaware or Texas, if you are doing business in your home state then taxes and state fees will be paid in in your home state. You also still need to pay fees in the state in which you filed your LLC as that is where you originally filed your paperwork. Filing in more than one state makes things a little tricky and in most cases will create a more complicated business structure and add unnecessary annual costs.
How to start an LLC – the easiest and fastest way to form your LLC
Starting your LLC is super easy and fast when you choose one of our recommended professional services!
- Select one of the top LLC formation services on our list above
- Fill in your company name and address
- Pay for the filing service (and possible add-ons such as EIN, Operating Agreement, expedited filing service, etc…) + state fees
Over 50% of U.S. publicly traded corporations are incorporated in Delaware and many LLCs are filed there as well. Delaware, known as a tax haven and holds a reputation as the most business-friendly state in the U.S, is a very popular choice because it does not tax out-of-state income, it has low filing fees and it has a special Chancery Court that handles business matters. That being said, there is still the matter of an extra state’s filing fees and hiring a registered agent. There are more advantages for corporations to file in Delaware than LLCs, but it depends on your particular situation. Remember the domestic vs foreign LLC requirements as you will be paying fees in both states if you do not reside in Delaware. The LLC Annual state fee in Delaware (DE) is $300 (every year). State filing fee in Delaware (DE) is $100.
It’s important to remember – taxes are paid where money is made! Meaning, if you form your LLC in Delaware but make your money in Texas, you will still need to pay taxes in Texas.