A Limited Liability Company (LLC) is one of the most popular business structures in the U.S. because it’s flexible, simple to run, and offers liability protection, meaning your personal assets are generally safe if the business faces debts or lawsuits. Plus, LLCs often benefit from pass-through taxation, where profits are taxed only once, on your personal return.
But here’s where it gets interesting: the state you choose to form your LLC in can significantly affect your business’s taxes, privacy, asset protection, and even startup and annual costs. Some states are known for being business-friendly, while others may have higher fees or stricter reporting requirements.
Even if you’re not a U.S. citizen, you can still form an LLC in America. However, every state has its own rules, benefits, and potential drawbacks, so understanding these differences before you file is crucial for making the smartest choice.
Factors to Consider When Choosing a State
Choosing where to form your LLC isn’t just about picking a place with low fees. It’s about finding the best balance between costs, protections, and convenience for your specific business needs. Each state has its own mix of tax rules, privacy policies, and legal advantages. Here’s what to look at before making your decision:
1. Taxes
Consider corporate taxes, personal income taxes, franchise taxes, and sales taxes. States like Wyoming, South Dakota, and Nevada have no corporate or personal income tax, making them attractive to some entrepreneurs. However, if you operate primarily in another state, you may still owe taxes there.
2. Filing & Annual Fees
Some states have low formation costs but higher annual fees. Others charge a one-time low fee but require expensive recurring payments to keep your LLC in good standing. Always check both the startup cost and the yearly renewal cost.
3. Privacy
In certain states, LLC owners (members) can remain anonymous, protecting their personal details from public records. States like New Mexico, Wyoming, and Delaware are known for strong privacy protections.
4. Legal Environment
A business-friendly legal system can make a difference if your company ever faces a lawsuit or contract dispute. Delaware, for example, has the Court of Chancery, a respected business court with experienced judges and predictable rulings.
5. Asset Protection
Some states offer stronger charging order protections, making it harder for creditors to seize ownership interests in your LLC. This is especially important for real estate investors and high-liability businesses.
6. Practicality
While forming in a “business-friendly” state sounds appealing, you might have to register as a foreign LLC in your home state if that’s where you actually operate, meaning extra fees and paperwork. For many small business owners, registering in their home state is the simplest and most cost-effective choice.
5 Best States for Starting an LLC Ranked
Not all states are created equal for forming an LLC. While your home state may be the most straightforward choice, some states offer tax breaks, strong legal protections, privacy benefits, and lower operating costs that can give your business an edge. Here’s a closer look at five states that consistently attract entrepreneurs from all over the country, and even abroad.
1. Delaware
- Business-Friendly Legal System – Delaware’s Court of Chancery specializes exclusively in business cases. Judges (not juries) handle disputes, which often result in faster, more predictable decisions.
- Tax Advantages – No state corporate income tax for LLCs that don’t operate in Delaware, and no sales tax at the state level.
- Flexible Management – The “series LLC” structure allows you to run multiple lines of business under one LLC, reducing costs and complexity.
- Reputation & Credibility – Many investors prefer Delaware LLCs because of the state’s well-developed corporate law and investor familiarity. Over 1.6 million business entities are registered here, including over two-thirds of Fortune 500 companies.
- Easy for Non-Residents – You don’t need to live in Delaware to form an LLC, and the process is relatively fast.
2. Wyoming
- Tax-Free Advantages – No corporate, personal income, or franchise taxes, meaning more of your profits stay in your pocket.
- Privacy & Anonymity – Wyoming allows anonymous LLC ownership, protecting your personal identity from public records.
- Low Costs – One of the lowest state filing fees in the country (as little as $100 to start) and affordable annual renewal fees.
- Strong Asset Protection – Wyoming offers some of the best charging order protection in the U.S., making it difficult for creditors to seize your business interests.
- Pioneering State – The first to adopt LLC laws (in 1977), Wyoming is known for continually improving business regulations to remain competitive.
3. Nevada
- Zero State Taxes – No corporate income tax, personal income tax, or franchise tax.
- Robust Privacy Laws – Nevada doesn’t require the disclosure of LLC member names in public filings, offering enhanced confidentiality.
- Asset Protection – Strong liability protection shields personal assets from business debts and lawsuits.
- Business-Friendly Environment – The state has minimal reporting requirements and no need for operating agreements to be filed with the state.
- Attractive for Out-of-State Owners – Popular for holding companies and asset protection entities, particularly for high-net-worth individuals and e-commerce entrepreneurs.
4. Texas
- No Personal State Income Tax – Individuals don’t pay income tax, which is great for business owners who take profits as personal income.
- Massive Market – Texas is the second-largest economy in the U.S., offering huge opportunities for businesses to grow locally.
- Low Franchise Tax Rates – While there’s a franchise tax, the rate is relatively low, and small businesses may qualify for exemptions.
- Supportive Business Climate – Texas is consistently ranked as one of the most business-friendly states due to its streamlined regulations.
- Strategic Location – With major ports, international airports, and proximity to Mexico, Texas is ideal for businesses that trade internationally.
5. Florida
- No Personal State Income Tax – Keeps more money in the hands of business owners.
- Series LLC Option – While Florida did sign a bill into law in June 2025 that will allow for the formation of series LLCs, this new law does not take effect until July 1, 2026. Therefore, as of the current time (August 2025), series LLCs cannot yet be formed in Florida.
- Strong Asset Protection – Charging order protection shields members from personal liability for company debts and vice versa.
- Growing Economy – Florida’s booming population and strong tourism industry create vast opportunities for service-based and retail businesses.
- Ideal for Real Estate Investors – Florida’s property market is attractive for both residential and commercial investment, making LLCs a common choice for holding properties.
Other States Worth Considering
While the five states above are often at the top of entrepreneurs’ lists, a few others offer competitive advantages worth noting:
South Dakota
- No corporate or personal income taxes, keeping ongoing costs minimal.
- Strong privacy protections, with limited public disclosure requirements.
- Business-friendly regulatory environment, especially for financial services and asset protection.
Alaska
- No state sales tax (although some municipalities may impose local taxes).
- No personal income tax can significantly reduce overall tax liability.
- Attractive incentives for resource-based industries such as fishing, oil, and natural gas.
- A less crowded market can benefit niche industries and specialized services.
Note: For a deeper analysis comparing the costs, compliance, and legal structures of different states, consult this resource on selecting the best state to incorporate a business.
Common Mistakes When Choosing a State
Choosing the right state for your LLC is more than just chasing low taxes or flashy incentives. Many new business owners make these avoidable mistakes:
- Focusing only on tax savings while operating in another state often leads to foreign registration, meaning you’ll have to pay fees and meet compliance rules in both states.
- Overlooking annual compliance requirements, such as annual reports, franchise taxes, or renewal fees, can add up over time.
- Ignoring where your customers and operations are based, your home state may be the most practical choice to avoid extra paperwork, legal complexity, and hidden costs.
LLC Formation for Non-US Citizens
Forming an LLC in the United States isn’t limited to American citizens. There’s no citizenship or residency requirement to own or manage an LLC. This makes the U.S. an attractive option for global entrepreneurs looking to access the American market.
- No Citizenship Requirement: You can form an LLC in any U.S. state regardless of your nationality or where you live.
- EIN Application Without an SSN: Even without a Social Security Number, you can apply for an Employer Identification Number (EIN) directly through the IRS by submitting Form SS-4 by mail or fax.
- Registered Agent Requirement: Most states require a registered agent with a physical address in that state to receive legal documents on your behalf. Many non-US owners use a professional registered agent service.
- Extra Tax & Reporting Obligations: Depending on your home country’s tax treaties with the U.S., you may need to file additional IRS forms, report income to your own tax authority, and possibly withhold taxes for certain transactions.
Final Takeaway
When it comes to forming an LLC, there’s no universal “best” state. The right choice depends on your business model, where you operate, and your long-term growth plans. While states like Delaware, Wyoming, and Nevada offer appealing tax and privacy benefits, the extra cost and complexity of foreign registration may outweigh those perks if your actual business activities are in another state.
In many cases, your home state is the most practical and cost-effective choice, even if another state appears more tax-friendly on paper. The key is to weigh tax implications, legal protections, ongoing fees, and operational convenience before making your decision.
